Mobile Payments Revolution Coming

This period of uncertainty gives CUs time to figure out what to do.

August 27, 2012

Credit unions will be at the center of the coming mobile payments revolution, some experts believe.

But numerous factors must gel for mobile payments to become popular and commonplace:

Near Field Communication (NFC) chips must become available in more mobile devices for either Isis, a mobile payment venture some are calling a “game changer,” 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 Board.

But 42% of respondents to the Fed survey said security concerns were the main reason for not making 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,” says Jim Block, Diebold’s director of advanced technology development. “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, such as:

  • 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.”

But that doesn’t mean credit unions can put off thinking about mobile payments and assume they’ll hold little appeal for members. Consider that 87% of consumers have mobile phones, the Fed reports, and 44% of those consumers own smartphones.

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,” says Al Ko, vice president of product management at Intuit Financial Services. “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. And 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, he says, is whether credit unions will be prepared for the disruption or will they wait on the sidelines and watch other players capture members’ transactions?