After sitting on the sidelines the last few years, the digital wallet is finally gaining traction with consumers. According to mobilepaymentstoday.com, a new Juniper Research study projects that the number of mobile wallets using contactless technology will reach 200 million by the end of 2016, representing growth of more than 100% since the end of 2014. Consider also a new Wristly survey of Apple Watch owners that found that 80% of respondents in the U.S. and U.K. have already used Apple Pay.

So while current reports of U.S. digital wallet adoption remain lackluster, a sneak peek into the future reveals a different paradigm.

“Right now, having a digital wallet on your phone does not mean you can give up carrying plastic cards,” Amy MacMullen, senior product manager for CO-OP Financial Services said. “You still have to find a merchant equipped with near field communication technology (NFC) in order to use a digital wallet in-store, and many merchants just aren't there yet. But, we expect that dynamic to change soon.”

According to MacMullen, Oct. 1, 2015, remains a pivotal date in the payment industry, and not just because it is a deadline set by payments networks for EMV-compliance in the U.S. – a transition discussed in CO-OP's EMV Common AID white paper.

“If I am a merchant that has decided to upgrade my payment terminals with EMV card readers, it makes sense for me to add NFC technology as well,” MacMullen said. “So we expect to see a wave of new terminals go live in the coming months with both EMV and NFC technology. This will give digital wallet adoption a much-needed boost.”

New Technologies Helping to Turn the Tide

Consider also that Android Pay just recently launched in the U.S with a couple of the largest issuers. And it is anticipated that Samsung Pay will soon follow. Plus, digital e-commerce solutions such as MasterCard's MasterPass and Visa Checkout make online shopping even more convenient. “These single sign-on solutions remove the need to re-enter shipping, billing and payment information before making a purchase when shopping online or in-app,” MacMullen said. “Instead, users simply select the 'buy button' and enter their credentials when checking out.”

While these and other factors have paved the way for an impending digital wallet boom, research indicates that consumers still have their hesitations. In fact, in a recent Gallup poll of 17,000 consumers, 55% expressed concerns over the security of digital wallets.

“The irony is that digital wallet transactions are believed by experts in the industry to be more secure than the mag stripe transactions we make every day,” MacMullen said. “So there is some education that needs to take place in the marketplace.”

A Lesson in Digital Wallet Security

So what do credit unions and their members need to know about digital wallet security? According to MacMullen, they should first understand a few basics about how NFC and tokenization work.

“NFC technology allows a device to communicate with a NFC reader to exchange data when placed in close proximity,” she said. “Card tokenization is the process of replacing the traditional account number with a unique digital token so that the consumer's card information isn't stored on the device or shared with the merchant. In addition to the security of the token there is fingerprint and passcode security on the device itself.

Card numbers are stored only in secured vaults at payments networks, out of reach from fraudsters if the phone is lost or stolen, or in the event of a merchant breach.”

While NFC serves as the foundation for the “big three” digital wallets, MacMullen noted that there are differences in how each platform operates. “Apple Pay uses NFC along with a secure element that is tied to the device,” she said. “Android Pay uses a form of NFC called host card emulation (HCE) that allows issuers to load wallets without the need to access a secure element embedded in the phone. Samsung Pay incorporates NFC technology and also features magnetic secure transmission technology (MST) that is compatible with magnetic stripe readers. These are all technologies that credit union employees should understand and be able to explain to members. To help, CO-OP has just released a new digital wallet white paper with an in-depth analysis of the technologies involved and market dynamics.”

She continued, “As a credit union, you want members to view you as forward-thinking and engaged with technology, and digital wallets can provide a fast, brilliant consumer experience with a secure authentication process offered by a trusted source. This technology will soon pique the interest of your members – especially millennials.”

Click here to access CO-OP's new white paper, “Digital Wallets: A Still-Fluid, Revolutionary Trend in Payments.”

Instant Insights /

Fast, Brilliant, Secure: Digital Wallets Deliver on Their Promise

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