The Mobile Wallet

When a mobile payments platform finally emerges, CUs need to be ready.

August 11, 2012

Dollars and coins are becoming so 20th century. Sure, we still plop cash into the tip jar at the coffee house, and dole out a few bucks for our kids’ allowances.

Increasingly, however, our daily purchases entail swiping a card that triggers an electronic transfer of digital cash. But even plastic cards might become passé, with the entrance of the mobile wallet. Part of its allure: no paper or plastic. Instead, we pay at the point of sale (POS) with our smartphones.

How soon will the mobile wallet be mainstream and ubiquitous in the U.S.?

That’s the billion-dollar question. “Globally, most money will be transferred using mobile devices by the end of this year,” Payton Dobbs, Google’s head of industry, banking, and lending, told attendees at the recent National Credit Union Roundtable. “This is standard procedure in the rest of the world; the U.S. is just now catching up.”


Mobile wallet technology someday will be mainstream and ubiquitous.

Two mobile platforms lead the race for standards: NFC- and cloud-based options.

Board focus: Review what-if scenarios and consider the trade-offs that come with different mobile payment strategies.

Some believe a mobile payment venture called Isis Mobile Wallet will be the game-changer. Isis certainly thinks so. “Isis can provide the consumer choice and scale necessary for widespread adoption of mobile commerce,” said Scott Mulloy, the company’s chief technology officer, in media statements last fall.

It’s still unclear, though, when mobile payments will catch on big-time in the U.S., and which system will surface as the “winning” solution—if there turns out to be one top choice. One thing is for sure, though: Credit unions ought to be monitoring events.

A fragmented field

Isis is a noteworthy development, says Jim Block, director of advanced technology development at Diebold, a CUNA Strategic Services alliance provider. “It’s important because there has to be some mechanism to reach critical mass in the market before mobile payments start to get traction.”

But it’s not clear yet how any such infrastructure would be successful in the market, he says. “There’s also Google Wallet, among others, and there’s always speculation about what Apple might do.”

Both Google Wallet and Isis Mobile Wallet use near field communication (NFC) technology, which enables contactless payments. To date, Google Wallet has partnered with Citi and MasterCard and is available only via Sprint on Samsung Nexus S, Galaxy Nexus, HTC, and LG mobile phones. The last two were added in May.

Isis’ founders include three mobile carriers—Verizon, AT&T, and T-Mobile—that have built partnerships with Chase, Capital One, and BarclayCard on the bank side, and four major payment system providers: Visa, MasterCard, Discover, and American Express. Isis will be usable on HTC, LG, Motorola, RIM, Samsung, and Sony Ericsson devices.

This broader base of partners across sectors could be what gives Isis a leg up in the market. The prognosis might be clearer after Isis completes pilot programs in Salt Lake City and Austin, Texas, this summer.

“Isis is clearly one of the largest players and one to watch,” says Al Ko, vice president of product management at Intuit Financial Services, a CUNA Strategic Services alliance provider. “But it’s too early to know how Isis will evolve or to pick one winner—or even if there will be one winner or multiple winners.”

Certainly the field won’t be as fragmented as it is today, he adds. There are dozens of competing visions, frameworks, and partnerships in the mobile payments world.

Indeed, Google and Isis are only two of many players in the mobile payments arena. There are two broad groups, says Brian Day, Dwolla product leader at The Members Group, a Des Moines, Iowa-based credit union service organization. “You have the NFC camp, which includes Google and Isis,” he explains, “and then you have the cloud camp. So not only do you have competing systems, but you also have different competitors within each system.”

Cloud-based products include what are known as alternative payment products, such as PayPal, Square, Dwolla, and several others. These options use software applications rather than NFC chips. Credit unions need to be ready for both, says Day.

“We coach our credit unions that they need to have
two strategies: one for a mobile wallet that uses the traditional MasterCard and Visa rails, and the other for an alternative payment product that doesn’t rely on MasterCard and Visa,” he explains.

While credit unions don’t need to make either/or decisions yet, they must understand what’s out there, he says. YouTube videos, he says, give helpful introductory demonstrations of these various forms of mobile wallet options.

 NEXT: Questions and concerns 

Questions and concerns

Numerous factors must gel, agree providers, for mobile payments to become popular and commonplace:

NFC chips must become available in more mobile devices for either Isis or Google Wallet to become the industry standard. One big question mark is whether Apple will install an NFC chip in the iPhone 5.

If Apple surprises the world and the next iPhone doesn’t have NFC, that would set the evolution back a year or more, says Mark Reinart, manager of software and services product management at Diebold. “Also, how long will it take for people to replace the smartphones they now have? That’s usually a two-year cycle.”

Merchants will have to make a major investment to install NFC chip readers. Until that happens on a broad scale, consumers will have limited options for making purchases with their NFC-enabled mobile devices.

Consumer willingness to make mobile payments is another unknown. About 12% of mobile phone owners made mobile payments in the previous 12 months—most often to pay bills, according to a survey by the Federal Reserve in December 2011 and January 2012. But the survey also found that 42% of respondents said security concerns were the main reason for not making any mobile payments.

A University of California, Berkeley, survey released in May also sheds light on consumer attitudes. Respondents said they wouldn’t make mobile payments at retailers if it required surrendering personal or data-tracking information. About 80% said they wouldn’t want retailers to capture their mobile phone numbers.

The list of questions and concerns hovering over the future of mobile payments continues.

“So many factors are at play here,” Block says. “What piece of the payment infrastructure will the mobile carriers want to capture? What piece of the infrastructure will the traditional card issuers want to capture? How much control will the various payment infrastructures—Isis, Google, or others—want to have over the consumer relationship?”

Revolution is coming

All these unknowns make it difficult for credit unions to answer some important questions:

When will mobile payments truly take off?
What will it mean for our credit union?
How long do we have to get ready for whatever is coming?

This period of uncertainty gives credit unions some time to figure out what to do, says Block. “You can play out some what-if scenarios, and at least get a feel for the trade-offs that come with different options.”

That doesn’t mean, however, that you can put off thinking about mobile payments and assume they’ll hold little appeal for your members. That might change. Consider that 87% of consumers have mobile phones, according to the Federal Reserve survey. And 44% of those consumers own smartphones, with that number increasing rapidly.

Smartphone owners take their devices with them everywhere, and use them to perform a variety of tasks. If these devices become mobile wallets, it’s safe to assume consumers would get used to the idea of leaving their physical wallets at home.

“The mobile payments revolution is coming,” Ko says. “I’m bullish about credit unions being at the center of it.” Members are already using cards, cash, and checks tied to their credit union accounts, he explains. More members are using their credit unions’ mobile banking apps. So the mobile wallet becomes another financial activity members can access through the credit unions they know and trust.

“My advice is that this disruptive technology in the form of mobile payments will happen,” says Ko. The question is: Will your credit union be prepared for the disruption, or will it wait on the sidelines and watch other players capture your members’ transactions?

NEXT:  'Read the tea leaves'


‘Read the tea leaves’

Obviously, you have no control over handset manufacturers’ decisions on NFC chips or when merchants will adopt new POS technology. The infrastructure pieces will fall into place during the coming months—or years. Still, your credit union can take steps in
the meantime.

For one, “read the tea leaves,” suggests Reinart, “to monitor what’s happening.” In other words, read as much as you can about relevant trends and projections, get coaching from your card association, and talk with your technology partners.

It’s also time to consider moving beyond rudimentary mobile banking, Reinart adds. Solutions that offer only simple options, such as looking up balances and transferring funds between accounts, are no longer adequate. “Credit unions should continue to advance their mobile banking services,” he says. “Some are adding mobile bill pay, remote deposit capture, and person-to-person (P2P) payments. You need to be progressive.”

By using bill-pay and P2P features in their mobile banking, members get used to thinking of their mobile devices as payment tools, says Calvin Grimes, product manager for mobile solutions at Fiserv.

“Consumers will adopt whatever simplifies their lives,” he says. “With P2P, for instance, I don’t have to go find my checkbook to pay for Girl Scout cookies or to hand over a check for my share of the rent to a roommate who works a different shift.” Comfort with such mobile banking activities, says Grimes, helps set the stage for the mobile wallet.


► Clairmail Inc.

1. 2012-2013 Credit Union Environmental Scan
2. CUNA Technology Council

► CUNA Strategic Services alliance providers:
1. Diebold
2. Intuit Financial Services

► Fiserv
► Isis
► Member Driven Technologies
► Profitstars
► Q2eBanking
► The Members Group

But the most important step to take now is to clarify your credit union’s mobile payments strategy, he advises. “Think about where you want to be able to go,” he says. “What do you want to be able to do? Then you can select a vendor that can help you create a roadmap to reach your objectives.”

Some credit unions already are looking ahead. Community Choice Credit Union in Farmington Hills, Mich., launched mobile banking in early 2011. From the get-go, mobile bill pay and P2P were included in the capabilities.

After about a year, 12% of the $460 million asset credit union’s active checking accountholders were mobile banking users, with about 380 new users coming on board each month, says Dan Munro, senior vice president of information technology and chief information officer.

Community Choice gets its mobile banking through Member Driven Technologies—a CUSO in which it is part owner. Community Choice also is in strategic discussions with its plastic card partner, PSCU, about the future of mobile payments and the credit union’s role.

“We don’t want to be a pioneer necessarily,” Munro says, “because we can’t afford to pick the wrong horse. But we need to be an early adopter or an early follower. Our partnership with PSCU will help us make the right choices.”

Right now, its strategy is to be prepared. “When things do shift,” Munro says, “we want to be ready to stand behind the yellow line, jump on the ride, and then hang on.”