Mobile Pilot Aims to Halt Declining Interchange Income
Preserving net interchange income for credit unions is the major goal of a pilot underway at the $430 million, Saginaw, Mich.-based Team One Credit Union. The credit union is employing the Newark, Calif.-based MShift, Inc.'s AnyWhereMobile mobile payment network.
“With AnyWhereMobile (AWM), credit unions can reverse the trend of declining interchange income, offer local merchants a reduction in interchange fees and grow their memberships,” Scott Moeller, CEO/founder of MShift, explained. “By lowering the cost of the transaction, the savings can benefit all parties.”
Moeller revealed that every credit union MShift has talked to over the last several years has seen its interchange revenue drop, while transaction and fraud costs have continued to rise. That's because current plastic card payment networks are not advantageous for the vast majority of credit unions today, he said.
AWM, which integrates into a credit union's mobile banking app, is a patented, credit union-focused mobile payment rail that allows members to make purchases at participating online and brick and mortar merchants. The system reduces merchant interchange fees by upwards of 50% more than plastic cards without impacting credit union net interchange income, according to MShift. During an AWM pilot, merchants pay a flat 13 cents per transaction. The majority of the interchange income goes to the credit union, plus, the credit union saves on the cost of issuing plastic cards.
Because the service reduces interchange fees for merchants, it enables them to provide Team One members with loyalty incentives and rewards for using the MShift network.
Moeller explained AnyWhereMobile can further lower costs for credit unions by mitigating fraud. AWM ensures the legitimacy of the funds by securing them in real-time, plus, there is no static card number present, which can be susceptible to theft. AWM, the merchant, the customer and their respective financial institutions each verify the transactions, and MShift tokenizes and authenticates payments using the location and PIN.
“This eliminates approximately 90% of current fraud cases,” Moellar claimed.
In addition to offering AWM to its members and local merchants, Team One will also serve as the clearing bank for the settlement between credit unions and merchants for AWM transactions.
“We are excited to be the first to launch AnyWhereMobile for both our individual and commercial members,” Gerald Hutto, president/CEO of Team One Credit Union, stated. “We see AnyWhereMobile as an excellent way to offer convenient, exciting and cutting edge service to our members, as well as a way to grow individual and commercial memberships, and a means of maintaining our interchange income.”
AWM's merchant interchange fees are lower because the network is not built on top of existing debit and credit card payment rails, such as Apple Pay, Google Wallet, PayPal and Square. It lowers the cost of the transaction to the merchant, unlike other services that increase expenses due to the addition of middlemen and fees, Moeller explained, adding that Apple Pay and Google Wallet are the most expensive methods for completing a transaction.
For example, when Apple Pay launched in October 2014, it announced the Apple Pay “wallet” would collect a small levy of 15 basis points (0.15 percent, or 15 cents, on a $100 transaction), that is derived from the issuer's cut each time their card is used during a merchant POS transaction. The credit union does not receive the fee – Apple does.
According Minneapolis, Minn.-based investment firm Piper Jaffray's estimate forecasts, this toll will bring in $118 million in revenue for Apple in 2015 and increase to $310 million in 2016. On the other hand, Japanese financial holding company Nomura Holdings’ equity analysts estimated it could account for $1.6 billion in revenue by 2017.
AWM's combination of “On-Us Transfers” – electronic items that involve drawing and paying accounts at the same bank – and ACH transactions make the lower interchange fees possible.
“The cost for an On-Us Transfer at a financial institution is close to zero,” Moeller said.
Read more: The long-term benefits of AnyWhereMobile are still hard to quantify ...
In addition, the cost of an ACH is already low for a financial institution.
“The aggregation of transactions into a single ACH for each participating financial institution makes each individual transaction cost negligible,” Moeller stated. “The combination of a zero cost and a negligible cost makes it possible for AnyWhereMobile to significantly lower the interchange fee for merchants and maintain a good interchange margin for financial institutions.”
Tim Ferrio, eServices supervisor for Team One, added, “AnyWhereMobile will provide a credit union-centric mobile payments option for our membership that will solidify our member and local merchant relationship by providing lower transaction fees to merchants and discounts to our members.”
After registering to use AWM through the Team One mobile banking app, members can securely make purchases at participating merchants and send real-time, person-to-person (P2P) payments via their mobile phone number or email address. The network is available to both iPhone and Android users, which is critical since more than half of Team One members use an Android app.
Merchants are not required to purchase or install POS systems to accept AWM payments. The AWM software-as-a-service merchant POS register, which MShift provides at no cost to the merchant, can run on any Internet-enabled tablet or PC.
Moeller commented that during the pilot, a participating Team One merchant raved about how much easier and faster the AWM POS is to use than their existing card POS system. “There is already a buzz being created by the merchant's patrons as they see Team One employees using their smartphones to pay for their tab,” he said.
Since Team One just released this pilot program a short time ago, the long-term benefits of the product are difficult to quantify, Ferrio admitted.
“We do know that in the short-term, we have merchants that are excited to offer a new, low-cost way to accept payments and member discounts that encourage payments with their Team One mobile app and AnyWhereMobile,” Ferrio said.
Team One has heard from members on how nice it is to call in a group order at a participating restaurant, have one person pick it up and pay with AWM, then have everyone send a real-time P2P payment to the person who paid to cover their lunch.
“Team One Credit Union has been challenged by our forward-thinking senior management team and board of directors to enhance and streamline our in-branch member experience while developing our product offerings to serve both new and existing members through either our traditional or e-service channels,” Ferrio commented.
Team One Credit Union utilizes other innovative products, including e-signatures for member and loan documents, mobile remote deposit capture, MyDeposit remote merchant deposits, online account opening, MoneyDesktop PFM and PictureMyCard plastic card personalization.