Magnetic-stripe credit and debit cards might be on their way out. Citibank India is piloting a “tap and pay” product that turns a smartphone into a virtual credit card. To pay, consumers simply tap the phone at the point of sale, using near field communication technology. Starbucks has similar technology available at stores across the U.S.
Many college and university student identification cards are equipped with a radio frequency identifier, which lets users tap the cards to a reader to access buildings. And many states use the same technology to deduct payments from people driving on tollways.
Credit unions, too, are offering members more electronic options. And with such a big shift in payment preferences, even CEOs are in touch with technology trends as they develop their credit unions’ short- and long-term payment strategies.
Keep phone companies out
“We’re shifting members to lower-cost electronic payment methods,” says Jean Trainor, president/CEO of $1.7 billion asset Veridian Credit Union, Waterloo, Iowa. The credit union currently offers traditional debit and credit cards, automated clearinghouse, mobile banking, and home banking with online bill payment. It plans to implement remote deposit capture via cell phone and person-to-person (P2P) payments by the end of 2011.
Veridian is investigating offering P2P through a third-party vendor. “If I want to transfer money to someone and I only know his or her cell phone number, I’ll go into the P2P solution and enter the phone number to initiate the transaction,” explains Renee Christoffer, senior vice president of administration. “The recipient doesn’t need to have an account with us.”
Through a vendor partnership, the credit union also plans to develop functionality allowing bill payment via cell phone. “People will be able to pay their bills through their phones, like they can on the Web today,” Christoffer explains.
Credit unions will continue to move toward mobile point-of-sale technologies such as cell phones with payment chips and chip-based cards, says Trainor. “It would be nice to just carry your phone and no cards,” adds Monte Berg, senior vice president of finance. “We need to get our networks, merchants, and consumers on board.
“And we need to move to chip-based cards like other parts of the world have,” he continues. “Eventually other countries will phase out magnetic-stripe technology and travelers will need chip cards.
“Chip-based authentication decreases fraud significantly, but since issuers are responsible for fraud, retailers don’t have much incentive to replace equipment to reduce it.”
Cell phone companies will get involved in payment systems if there’s a revenue stream for them, says Berg. “Some already allow users to buy apps via phone. We need to move forward to keep them out of the payment systems.”
Stay on top of trends
About a year ago, $379 million asset Merced (Calif.) School Employees Federal Credit Union implemented Fiserv’s Mobile Money, a smartphone app allowing members to access the Virtual Branch home banking and bill payment system.
“And we were one of the first credit unions to use the hosted version of Mobile Money, where Fiserv manages it for us,” says Nancy Deavours, president/CEO.
More than one-quarter of the credit union’s 35,800 members use Virtual Branch, and Mobile Money is becoming increasingly popular. The credit union launched the product to appeal to students, but Deavours has been pleasantly surprised at the interest expressed by other member segments.
So far, members haven’t asked for additional apps. “Mobile Money is the newest product we offer; maybe new apps are the next thing they’ll want,” she says.
“We have a very close relationship with Fiserv, which allows us to stay on top of industry developments,” she adds. “So when members ask for products, we have a basic understanding and can go forward.” Mobile payments technology is a growing part of the industry’s focus, she says.
Since most apps tie directly to checking accounts, Deavours doesn’t foresee those accounts ever disappearing. “Only the ways members access them will change. And members will always need a credit product, but it might not be credit cards as we know them today,” she says. “Members will do much more through their mobile devices.”
At this point, though, some members are still very high-touch. “They love to come in to the branch and don’t mind standing in line for 15 minutes,” Deavours says. “Then we have the high-tech members who don’t want to set foot in a branch. We pride ourselves on having staff available for the first group and technology
for the second.”
Provide multiple methods
Contactless payments through chip cards, key fobs, or cell phones will become dominant in five to 10 years, predicts Peter Paulson, president/CEO of $531 million asset Corporate America Family Credit Union, Elgin, Ill. “They’ll still need to settle through a checking or credit card account, so the concept won’t change, just the physical object used,” he says. “It’s a change in member convenience.”
But members won’t abandon current methods, so credit unions will still need to provide them, he says. “It seems like whenever we add something new, members continue to use existing channels.
“We’ll need to do our due diligence as more options become available, and be somewhat selective in what we implement,” he adds. “Does it meet our expectations? Is it viable and secure?”
Paulson expects a continued decline in check use. In fact, the credit union offers a checkless, debit card-only account. And cash use will slowly decline, too, he says. “It’s still popular for P2P payments, but as soon as electronic P2P payments are more prevalent, the reasons for cash will diminish.”
Corporate America Family’s home banking app is available for the iPhone, and its remote deposit capture app works with iPhones or Droids. The credit union also offers P2P using a smartphone and PayPal.
“Our members use multiple methods depending on their personal choices or circumstances,” says Paulson. “They might use bill pay for the phone bill, but P2P to pay the babysitter—although they can use P2P to pay businesses, too.” Members can use the P2P option to pay anyone with a PayPal account, he explains.
The credit union is an early adopter of new channels. “We’ve added almost anything we could over the past few years,” Paulson says. “Payment channels are typically pretty low-cost, and our member adoption rate is strong. I don’t know what else we’d adopt right now that’s widely available in the U.S.”
Keeping online services fresh and robust is vital for credit unions, he says. “It’s such a competitive way to deliver services to members. It’s so easy to compete even with the largest banks, and it’s a must for attracting the next generation of members.”