This year, PayPal celebrates a decade since it forayed into theworld of mobile payments in 2006. Back then, things were a littledifferent. Web-based payments were still the preferred method forecommerce transactions – and rightfully so. Digital marketplaceswere not as technologically capable of supporting mobiletransactions as they are now. In 10 years, the mobile paymentsindustry has evolved significantly.

During the infant stages of its mobile payments capabilities,PayPal enabled users to transfer cash through text messaging, notan app. Today, PayPal's mobile payment volume has exceeded morethan $66 billion, accounting for 30% of its traffic, Pymts.comreported April 5. In 2011, mobile only accounted for 1% of PayPal'spayments volume. The preferences of consumers for an omnichannelexperience has largely contributed to PayPal's – and other paymentservices' –growth. As technology evolves, so do consumers.

This year is a good time for credit unions to pause and reflecton the current state of the payments landscape. A majority ofconsumers continue to identify financial institutions as logicalproviders of next-generation services such as digital wallets. A“wait for the winners to emerge” approach will likely result incredit unions lagging behind the curve.

Apple Pay Verdict So Far

Apple is a global influencer; it's no surprise when the techgiant unveiled Apple Pay to the world in late 2014 it unleashed amarketing campaign aimed at distinguishing itself from thecompetition. Apple has succeeded in harnessing the marketingresources of nearly all major U.S. banks as well as AmericanExpress, concentrating efforts toward a single high-profile rolloutand in the process breaking the logjam caused by indecision overwallet alternatives.

So what are the early returns on Apple Pay as we near two yearssince its launch? Despite widespread promotion, fully 85% of U.S.iPhone 6 owners have yet to try Apple Pay, according to a recentFilene report, “Turmoil In Payments: Keys to Credit UnionSuccess.” While this is likely to decline over time, a moreominous indicator comes from sporadic Apple Pay users, a majorityof whom perceive it as no better than the swipe in terms of speedand ease of use.

More than three-quarters of credit unions reported a desire tobe in the market with Apple Pay by the start of 2016. How thatplays out throughout the rest of the year remains to be seen.

One of the biggest shortcomings of Apple Pay is its lack of arewards component. Incentivizing mobile payment adoption may be thekey for Apple and other providers to gain more users. Seventy-ninepercent of American consumers reported they would increase theamount they use their phone to make payments if they were offereddiscount pricing or coupons based on past usage, according to theFilene report.

The Others

Google was early to the digital wallet revolution in 2011.Google Wallet had some early stumbles regarding data ownershipissues and generating user interest. While Apple holds an awarenessbenefit and wallet share advantage, Android comprises more than 50%of the handset market – making it prime for a viable walletsolution. Android Pay is Google's second attempt at payments as thecompany quietly transformed Google Wallet into a peer-to-peerpayment app.

Google appears to be at a payments crossroads; having alienatedfinancial institutions over data ownership issues, it could use itsacquisition of Softcard's assets as a way to soften its stance, orit could decide to cede the financial institution-friendly positionto Apple and take an adversarial approach. Android Pay offersconsumers rewards for purchases, which bodes well for merchantssupporting loyalty programs.

Credit unions can pursue local rewards/offers through paymentplatforms as a logical extension of their community focus. CUWallet, a credit union member-driven digital wallet, has embarkedon such an initiative. CU Wallet works with 120 credit unionsserving more than 10 million members, according to a Feb. 22MasterCard news release.

It's still too early to assess whether there is enough desireddifferentiation in customer experience for a credit union specificdigital wallet to attract significant market share. However, inFebruary, CU Wallet announced a partnership with MasterCard tooffer the MasterPass digital service for in-store, in-app andonline purchases.

Can Credit Unions Survive The PaymentsBlitz?

In a time when consumers expect quality and convenience, creditunions are feeling the pressure to compete against larger financialinstitutions on feature functionality. However, according toFilene, CEOs believe most members do not expect leading edgeofferings from their credit union.

More than 80% of credit union CEOs believe their members expectno difference in the credit union's payment capabilities incomparison to large banks, according to the Filene report. Whatmembers really desire is knowledge or understanding of whattechnologies are down the radar. There are a number ofcollaborative and individual solutions credit unions can leverageto help them survive the ongoing payments blitz:

• Prepaid/reloadable debit cards: Only 40% of credit unionscurrently offer prepaid cards, highlighting opportunity forimprovement. Prepaid cards can offset some of the losses fromlosing members or potential members to non-traditional financialproviders. Not only will they serve as a promising source of feeincome but they can help reinforce financial responsibilitymessaging.

• Preparedness for loss of interchange revenue: In the next fiveyears, interchange revenue will continue to decline, especially asmore retailers take control of payment rails. To counter this,it'll be imperative to diversify product offerings to stimulaterevenue growth.

• Apple Pay/Android acceptance: Each credit union should evaluateits financial capability for adopting a digital wallet such asApple Pay or Android Pay. If members are willing to adopt, then theparticipating fees may be worth the investment.

• Credit union-specific wallet: A service such as CU Wallet helpscredit unions leverage community ties to reinforce “shop local”messaging efforts. Naturally, this type of solution is ideal forlocal reward/loyalty programs. However, such programs may limitscale to attract major merchants.

It's never a bad time to pause and reflect on progress. Themarket for digital wallets is approaching a tipping point, and thewindow of opportunity to stake a claim may soon close.

Manpreet Nat is a research associate for Filene ResearchInstitute. He can be reached at 608-661-3752or [email protected].