When Rick Cranston read recently that 72% of 18- to 34-year olds would consider moving to digital competitors such as PayPal and Wal-Mart, he had to pause to let that potential shift marinate.

“That possibility should terrify all of us,” said Cranston, director of business and product development at the Mountain West Credit Union Association, which represents 132 credit unions in Arizona, Colorado and Wyoming.

Depending on the size of credit union, there are literally hundreds to thousands of small business members that the industry is not measuring or pursuing, Cranston added. Instead, competitors such as PayPal, Square, Alibaba and MCX when it launches, are setting their targets directly on the micro payment and micro merchant spaces.

“Today, credit union members leave the credit union eco-system, every day, week and month to go to, for example, PayPal,” Cranston said. “PayPal is looking to be one of the largest financial institutions in the world.”

The MWCUA is hoping to become a player in the micro payment and merchant arena through the launch of CU.PAY, a platform that allows member payments to be paid by credit cards via a mobile and Web application which can also be integrated into existing digital wallets and the credit union banking system.

More than 18 months ago, the MWCUA partnered with one of its select partners, Inspire Commerce, a merchant services company. When the firm made its debut in 2008, it filed two patents: one for simplifying the act of requesting money through a URL link at InspirePay.com and the other focused on ways to actually democratize the digital wallet and allow for simplicity in a more diverse environment, according to Cranston.

The end result is more options for the merchant to offer and for the paying party to choose from. At the core of Inspire Commerce's technological infrastructure is a payment kernel referred to as the .pay payment framework, according to Mark Fischer, CEO of Inspire Commerce.

The company is registered with Visa and MasterCard as an ISO/MSP as well as a TPP/TPS, and is PCI DSS Level 1 certified, which is the highest level of security audit possible within the industry, Fischer said. In 2012, Inspire Commerce said it experienced record growth with recurring monthly merchant services revenue increasing 106.99% for the year. New merchant growth of InspirePay increased 26%, month-over-month, with 100% of this growth being organic, person-to-person referrals, Fischer said.

“Imagine the acceptance of payments as a birthright of all credit union members. Now imagine members telling their friends about how they are able to work with their credit union rather than Square or PayPal, and can save money in the process,” Cranston said. “This approach not only makes credit unions relevant as a holistic small business offering, it applies to all members, and also allows them to capitalize and increase stickiness with a market already present.”

CU.PAY is not an application or a wallet and does not compete at these levels, Cranston noted. The platform is not for MCX, Paydiant, Vantiv, Visa or MasterCard, he said. If credit unions need to make any conversions to existing systems, Cranston said, very little would need to change from the technology vantage point.

The new platform is set to be completed in 2015 and MWCUA and Inspire Commerce will then move forward with early adopter credit unions, Cranston said. Discussions have been held with credit unions and leagues across the country, he said.

Investing in CU.PAY depends on the engagement credit unions want to make, according to Cranston. Ownership opportunities are available and those that want to implement the system would have little to no direct overhead, he said.

“Culturally, this will move slow because credit unions have always depended on a third party platform for payments,” Cranston said. “Also, almost all of us are universally focused on issuing. We traditionally issue cards. We don't pursue acquiring.”

Companies such as PayPal and Square have proven that micro-payments can be successful, Cranston said. At Starbucks, for instance, the consumer behaves like a micro-business. Still, credit unions can build an internal model.

“Our industry is slow to the game, and depending on a third party to give us a good deal later is risky and not a good strategy, especially considering the pace of change,” Cranston said. “Those third parties, without naming them, do not have credit union members' best interests at heart and instead, are driven by profit.”

Rather than viewing outside forces as enemies, some credit unions are indeed seeing the potential of these types of alliances. For instance, business members at the $58 billion Navy Federal Credit Union in Vienna, Va., who sign up for Square will have low card processing costs with no activation or monthly fees.

“Our members are very knowledgeable when it comes to the newest technologies, and they're always looking for ways to grow their business,” Jim Salmon, vice president of business services at Navy Federal, said at the time the credit union announced the Square alliance in March.

To allow its business members to accept payments anytime and anywhere, the $6.2 billion America First Credit Union in Riverdale, Utah, introduced The Dot, a mobile credit card payment device, to its members last October. The small card reader uses an app to connect with an iPhone, iPad or Android device and accept credit card payments.

America First's The Dot can also be used to accept payments for phone and email orders, the credit union said, adding that any offsite merchant can safely process customer payments and immediately email receipts.

John Lund, president/CEO of America First, has said The Dot appeals to those business members who run their operations outside a brick-and-mortar store or those looking to provide faster customer service in a retail operation.

Speaking at the American Association of Credit Union League's conference in November 2013, Fischer said like the banking industry, credit unions are facing some huge hurdles in the coming years, with consolidation among the bigger ones.

“There is more money in credit unions in the U.S. than any single bank, yet (they) are stuck at a 7% market share with no real tools to survive the technological evolution of this decade,” Fischer said. “The one thing they need, in our opinion, is a serious mobile strategy. Not just mobile banking, as they are actually doing fairly well there. They need to own electronic payments. Simple, elegant, effective and cheap.”

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