Interest and noninterest income have been primary sources of credit union revenue. However, highly publicized, aggressive moves by Apple Pay and other tech firms into mobile payments have created a new threat to that business model that's hard for credit unions to ignore.

It's even harder for them to conquer.

That's because in order to join this emerging frontier of mobile payments, credit unions basically have to do one of two things: Sign up with a third-party provider like Apple Pay or create their own mobile payments technology.

In either case, there's a potentially huge source of revenue at stake — advertising — and it could wildly change how credit unions do business.

This intersection of Main Street and Madison Avenue was the natural result of the payment channel's shift to self-service that began with the advent of the ATM and is now squarely in mobile, according to Richard Crone of Crone Consulting, an independent advisory firm that helps credit unions and banks create mobile payment strategies. In fewer than 18 months, more than half of all service interactions with members will be via mobile, and millennials in particular have become very willing to ditch a financial institution for one with better mobile-payment capabilities, he said.

But many credit unions are in Paul Parrish's shoes. Parrish, who is chief operating officer at the $751 million One Nevada CU in Las Vegas, said he went to trade shows looking for answers on what to do about mobile payments. One Nevada has about 76,000 members; it also has a mobile payments app in the pilot phase, Parrish said.

“We'd be sitting around the room with a lot of very smart people in the industry and basically coming away with everybody looking at each other saying, 'Well, I got nothin',” he said.

That stuck feeling is why so many credit unions have little choice but to let Apple, Google, Samsung or other third parties have their mobile payments business, even though there is a price to pay, according to the experts.

The first is financial.

“They give up a pound of flesh directly to Apple — 15 basis points on every credit transaction, a half a cent on every debit, plus paying Visa or MasterCard tokenization fees, accepting tier one support, and giving up the user interface and the upside that comes from the ads and offerings,” Crone explained. “It's worth about $300 per active wallet user per year. That is a big cost.”

The second is opportunity cost.

“They'll tell the member, 'You know, go ahead and load up that application or Google Wallet, but just make sure you're putting our credit card in there and our debit card in there, and we're going to be good to go and everybody's going to be happy.'” Parrish said. “The next thing you know, what they're doing is accommodating these third parties that start peppering your members with ads and offers that they don't have any control over or that the credit unions don't have any control over. The next thing you know they'll be getting hit by Quicken Loans and Capital One and, you know, a whole conga line of competitive or competing products. That's just not the direction we want to go.”

But that is indeed the direction many credit unions go, simply because they can't possibly assemble the capital and talent it takes to create mobile payment technology that rivals Google or Apple in use or adoption.

Read more: Services like CU Wallet put competitive pressure on fees from Apple Pay …

That problem has become an opportunity for One Nevada and other credit unions involved with CU Wallet, a CUSO working with more than 100 credit unions to launch a mobile payments platform.

Founder Paul Fiore said the venture launched its first version about four months ago and is still piloting the technology.

Options like CU Wallet or even MCX's new CurrentC network could put competitive pressure on the fees Apple Pay and other mobile payment providers charge.

But that appears to be a secondary benefit. The real win is to regain control over the data users generate — because it's worth a fortune.

Mobile payment apps usually have advertising space that can be sold on a cost-per-thousand, cost-per-click or cost-per-acquisition basis, and the potential annual advertising revenue from one member with an active mobile wallet is more than $316 per year, Crone said.

“To put that in perspective, the average credit union generates only about $150 in gross revenue on a checking account. Most of that comes from overdraft fees,” he said.

“Instead of fighting over the $0.30 they can make from interchange on paying my monthly bill on ACH versus credit card, they could get a $1,000 from a solar company as a lead generation just to identify all the people who live in Southern California that own a home whose energy bills are over $500 a month,” Fiore added as an example.

“What we're able to do with mobile is use that data to make our sale of data the most valuable in the marketplace, which will bring in tons of money to the credit unions and will actually be the model in the long run that credit unions can rely on for revenue, for the member's benefit,” Mark Berman, principal and cofounder of Baltimore-based Horsetail Technologies said. “If you add the geo-location to the financial picture, plus the search, you have somebody whose wallet is very ripe for a purchase. That has the most value in the marketplace of all.” Typically members must opt in to receive offers, he said.

Credit unions are in a more trusted position than most financial institutions and mobile-payment providers when it comes to customer relationships, and that can be an advantage among advertisers.

“You're kind of eschewing the task, which is keep my money in a big fat safe, and instead make my life easier, make it better, give me value, make me a better consumer and do it from a platform that I already trust and have trusted, and my parents trusted and my grandparents trusted,” Berman added.

He who enrolls, controls — so don't let a love-hate relationship with the digital world become an excuse for analysis paralysis, the experts warned.

“Every credit union needs to get involved, even if it's going to hurt their revenue model in the short run. You're not going to be there if you can't offer this stuff in the long run. You've got to take Apple Pay, even if Apple Pay isn't the final winner, and Google Pay and some other one. You have to be sort of mixing it up, because otherwise, you're going to be left on the side,” Berman said. “The world of paying for things and authenticating yourself is going to be really dramatically different 10 years from now. For a credit union or a bank or anyone else to stay on the sidelines, that's the death knell.”

Instant Insights /

Mobile Payments Open New Revenue Frontier

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