Mobile Payments

The single greatest opportunity—and threat—CUs will face in the foreseeable future.

June 01, 2013
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Despite their rapid growth, mobile payments still represent a relatively small portion of the total U.S. payments infrastructure: Only 6% of smartphone users have made payments using this device.

But even though mobile payments represent a relatively small share today, the earnings potential makes this an important technology for credit union executives and boards to understand, either developing this expertise internally or through third parties.

Mobile payments offer credit unions a way to retain members—who could opt for other financial providers for the mobile opportunity alone—and realize significant revenue by partnering with retailers. Plus, mobile payments offer some security controls not available through other payment forms.


But mobile payments aren’t just about payments. The technology can increase a credit union’s overall value by building a member relationship management database where members are known and can be contacted before, during, and aft er each payment.

Armed with this data, credit unions can leverage mobile payments to:

The strategic issue revolves around where you want this functionality to reside. Do you want it under your control in your own app, or under the control of unauthorized third parties?

The key strategic point here is that the one who enrolls is the one who controls.

Retailers take the lead

The proliferation of smart devices makes the mobile payment a simpler, more engaging option than fumbling through a wallet for payment cards and loyalty cards. Mobile payments give consumers the ability to have payments, loyalty information, digital coupons, and other information all in one location.

Studies show that consumers are more likely to leave their wallets at home than their mobile phones. The mobile device is always handy and easy to use with a mobile payment app.

As a result, consumer demand for mobile payments is off the charts, as evidenced by the success at some retail locations.

The most dramatic case of the quick uptake of mobile payments isn’t at a financial institution but at Starbucks. Since rolling out mobile payments in 2011, Starbucks has enrolled more than six million customers in its mobile payments program.

This is the most successful launch of a new payment type in history. By March 2013, Starbucks was doing 2.3 million mobile payment transactions per week.

Starbucks’ mobile app uses a QR code that identifies each customer. When scanned at checkout, the QR code deducts the payment from the user’s prepaid Starbucks account.

Such a system helps ensure loyalty as the customer continues to keep the account active. It also negates any need for the merchant to have a terminal with near-field communication (NFC) technology.

Only a small percentage of point-of-sale terminals have NFC capabilities today, which presents a problem for some mobile payments providers. Moving payments from the terminal to the cloud, however, solves this problem.

In August 2012, Starbucks took a $25 million financial stake in the payments provider Square, and Starbucks CEO Howard Schultz was appointed to Square’s board of directors.

Starbucks is the largest of the estimated 250,000 merchants using Square’s mobile wallet. The merchants have about three million customers using the Square mobile payment app.

Other retailers have also been much more aggressive than financial institutions in developing and launching mobile payment apps. Following Black Friday, eBay and PayPal reported 153% and 193% annual increases, respectively, in mobile payments.

Square is piloting a mobile app that lets consumers click on a participating retailer’s icon on their mobile phone before walking into a store. The app then sends the consumer’s account information and photo to the screen on the cash register. The clerk can then use the photo to verify identity and authorize payment.

PayPal and Google Wallet are working with Discover Card to couple the mobile payments with a plastic card. This enables the use of electronic wallets with merchants that don’t have NFC-enabled terminals.


Merchant Customer Exchange (MCX)—a joint venture of Target, Best Buy, Walmart, and several other national merchants—is developing its own mobile payments platform, which will enable the participants to operate their own payment system and avoid interchange fees.

NEXT: Banks enter the fray

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