Now’s the Time to Enroll Mobile Payment Users
Interchange, the lifeblood for many credit unions’ checking account offerings, is coming under increasing pressure. In recent years, credit unions with less than $10 billion in assets have earned about half their total revenue for demand deposit accounts from debit card interchange.
However, as 2013 came to a close, the PIN debit networks such as NYCE, STAR, Pulse and Accel started promoting to merchants a “least-cost” routing option for non-petroleum transactions less than $50, without a PIN, bypassing the higher post-Durbin clearing rails of Visa and MasterCard.
Known as PINless debit, this new payment routing undermines a revenue stream that for the majority of credit unions less than $10 billion in assets was thought to be protected post-Durbin. The net result: substantial reductions in interchange revenue, since 80% or more of debit transactions for the credit unions we have worked with qualify for this lower cost routing by the merchants. Our credit union clients have already seen interchange reductions as much as 10% to 30% and are bracing for decreasing revenue twice that amount or more by the end of next year or sooner.
Mobile payment at retailers’ point of sale and cardless mobile cash access at ATMs, via a credit union’s mobile app, provides a means to not only replace lost interchange but an opportunity to enhance a credit union’s service offering in ways that can benefit the entire membership, especially when you consider the new ancillary revenue streams that can be derived from mobile self-marketing and actionable offers.
Mobile banking is growing five times faster than wired online banking did and is the number one reason, after fees, cited for switching financial institutions. Mobile payment at the physical point of sale (not person to person) is the other most-cited feature for switching financial institutions, with 52% of Millennials ages 18 to 34 willing to switch financial institutions for a mobile wallet capability, as reported by Alix Partners and the Bank Administration Institute in March.
Mobile payment options can play a critical role in fueling new transaction and revenue growth for credit unions and attracting younger Millennial members with a payment preference for debit. This is especially important since the average age per credit union account holder has increased to over 49 years, according to CUNA’s 2013-2014 National Member and Nonmember Survey Report.
With the fastest growing account type for many credit unions being deceased accounts, the return on investment for aggressively investing in mobile is built on the rejuvenation of their membership and attracting new, younger debit-preferring members.
As more consumers migrate to mobile apps for managing their financial lives, advanced functionality will be key to all financial institutions’ efforts to retain and grow their customer base and profitability.
Mobile payment and cardless mobile cash access hold the key to increasing member loyalty, active account longevity and transaction frequency, especially for younger Millennial members renewing the credit union movement’s aging member pool. Mobile can also contribute to cost reduction and service interaction optimization as a result of increased usage of the credit union’s mobile banking app.
Read more: Promising new revenue streams ...
The most promising net new revenue streams from mobile payments and cardless MCA come from the value of geo-triggered advertising and offers, selected and opted-in by members, linking them to retailers, consumer packaged goods, product manufacturers, complementary, non-competitive financial and other non-banking services. Accounting for at least three simple new revenue streams, the mobile wallet will generate new income from impressions (Cost per Thousand Impressions – CPMs), click-throughs (Cost per Click – CPCs) and a piece of the action for proven net new sales (Cost Per Acquisition – CPA).
In consulting to credit unions we have developed a detailed model for measuring every possible CPM, CPC and CPA that supplements the usage of the credit union’s own branded mobile banking app by adding a mobile payment and cardless MCA capability. Our analysis shows that the value of opt-in, geo-triggered personalized ads and offers can be worth two to three times the gross revenue currently generated per a demand deposit account. Depending on whether you are managing your own credit card program or not, the value can be one to four times greater (or more) per credit card account.
Credit unions are now in danger of being left behind by banks, merchant consortiums and third- party intermediaries rallying behind common platforms for mobile payments and cardless MCA. The one who enrolls is the one who controls, and the credit union movement is at serious risk of third-party intermediaries enrolling their members first for mobile payment and cardless MCA.
PayPal’s 137 million, Google’s 425 million, Apple’s 800 million registered users, all with enrolled payment credentials, pose serious threats of hijacking the trusted payment relationship with the credit union. And that doesn’t include the 900+ million worldwide mobile users at banks.
With this threat comes the opportunity to leverage the movement’s strength by creating a completely new cooperative ownership structure unencumbered by the innovator’s dilemma of existing CUSOs. Only then can credit unions truly “combine and conquer” in the same way that Visa and MasterCard did for their original investing banks or what the Merchant Customer Exchange intends to do for its retailer owners.
In doing so the credit union movement can better represent its combined collective bargaining power of more than 90 million members, from a position of strength with all the other stakeholders in the mobile payments and mobile MCA ecosystem.
Time is of the essence for the movement to enroll members for their mobile payment apps in advance of interloping third parties; and in the process reduce costs, increase net new revenue streams, and create a better experience for members.