Technology

Mobile Payments

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

June 01, 2013
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Banks enter the fray

Even though retailers are leading the charge into mobile payments, some financial institutions aren’t far behind.

Bank of America, for example, is enrolling 10,000 customers a day on its mobile banking app, and has 12 million users. U.S. Bank launched its own mobile payments wallet in December 2012, allowing mobile device owners to apply for the U.S. Bank Go Mobile payment service.

Customers are provided an iPhone case containing an NFC chip with their U.S. Bank Visa card credentials, allowing mobile payment at any Visa Pay- Wave terminal.

Some financial institutions are piloting a whitelabel solution (one that’s produced by one company and marketed by another) developed by Paydiant that enables mobile payment from any smartphone and requires no new hardware at the POS. Payment credentials are securely stored in the cloud and linked to the mobile banking app for a financial institutionbranded, seamless, and secure customer experience.

Rather than presenting the payment credential as a code, the phone reads the transaction code at the POS and executes the transaction in the cloud, eliminating any Payment Card Industry Data Security Standard concerns.

Mobile payments can allow financial institutions to collaborate with merchants for additional benefits. Cross-pollination enables financial institutions and merchants to share consumer information that provides a more complete picture of customer preferences, financial sophistication, or demographic background. That way, both parties can make more targeted offers.

Remember the key strategic point from earlier: The one who enrolls is the one who controls.

If the merchant enrolls the customer in the merchant’s mobile payment app, the merchant controls the customer experience, including which financial institutions it will work with. But if the credit union enrolls the member, the credit union controls the relationship.

Credit unions also can tie in mobile payments with mobile banking, cardless access to ATMs, and other technologies for additional member convenience. Each channel can reinforce the others because mobile is the cross-channel enabler—it’s present in every other channel.

By aggregating inside its own mobile app, credit unions can benefit from increased spending and the opportunity to advertise and bring in new members. Credit unions can also better understand members’ wants and needs, offer incentives, provide direct and complementary advertising from mobile app partners, and broker connections back to partners from a position of strength.

The mobile advertising and gross revenue opportunity is two to three times greater than the gross revenue available from card-based accounts, and at least five times greater than the revenues available from a simple demand deposit account—a critical factor to consider as credit unions look for additional sources of revenue.

Mobile payments can work for a credit union or against it, depending on who controls the user interface and data. By enrolling members in mobile payments, credit unions have the contact information and data on the member’s spending habits, which helps them offer more targeted messages.

If the merchant or another third party enrolls the member, however, those targeted advertising dollars become potential costs to the credit union, not benefits. The result is incremental revenue if the credit union enrolls the consumer, or incremental cost if the credit union wants to advertise to the consumer who’s enrolled by another party.

And mobile payments can provide an additional layer of security that other forms of electronic payments don’t: identification of the device using one or more unique data elements and the location of the device, as well as multifactor authorization.

Google Wallet mitigated some of the risks and costs of NFC payments when it moved its mobile wallet to the cloud in 2012, storing credit card credentials there. This keeps sensitive credentials behind the firewall of the cloud, rather than on the mobile device itself.

NEXT: Strategy integration

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