A New Acronym, and Why It's Hip to Fear Square

At the recent Harland Connections meeting the company's CEO, Raj Shivdasani, offered up a new term (and the always requisite abbreviation) for credit unions to learn. "Mobility has become another channel, and the key to it is untethered banking," observed Shivdasani, before urging everyone to prepare for IaaS. "That's what brings about anytime, anywhere banking, including what is now being called Infrastructure as a Service. The key is the cloud and cloud computing. We will be starting to offer IaaS services."

Not surprisingly, at the same meeting, as has been the case at just about every CU meeting this year with the exception of the Association of Amish CUs, payments got plenty of attention.

Harland EVP Scott Hansen was among several analysts who cautioned credit unions to be prepared to get into micro-payments or be prepared to lose members to other providers. He said his company's DPXPay payments app, for instance, has seen a 12% increase in the average payment over the last 12 months to $648, and that over that same time the P2P payments have been 60% in, 40% out among users. "You have to be able to offer micro-payment capabilities or you're going to lose them to Square," said Hansen.

If you haven't already used it, or had a vendor pitch the service to your credit union, account-to-account (A2A) and person-to-person (P2P) payments are popular features in cellphone commercials that show users tapping phones together to exchange funds or quickly texting a payment to a babysitter. (What this will mean eventually to all those people who get paid in cash or partially in cash when it comes time to file their taxes is an interesting question, btw.)

"The concept of someday being able to send money anytime to anybody without a check is something we know is coming," said Hansen. "Adoption is slow early on, but it will evolve and progress and have a ski-slope-shaped adoption curve."

Meanwhile, the aforementioned, San Francisco-based Square, which allows just about anyone to accept a credit card payment, has exploded by showing how millions of "micro" transactions can add up to one big macro. Bill Maurer, a professor of anthropology (yes, anthropology) at UC Irvine who analyzes the merchant and payment space as part of broader studies, recently told the Los Angles Times that Square's "ambitious" goal is to harness the "informal economy."

"Square is basically taking all of this existing informal economic activity that is all willy-nilly, scattershot stuff and gathering it all up into a digital platform with a payment system," Maurer told the Times. "That lays the foundation for a whole separate economic sector."

For credit unions to capture that separate economic sector in which many of their members are already involved is going to require much more than a "willy-nilly" approach. Like other vendors, Harland is working on a solution, in its case in partnership with Vantiv.

The Disruptor

"We are paying more attention to what Square is doing. They have not just set their sites on micro-business, they are going squarely for mid to small businesses where you would have POS at three or four cash registers," said Hansen. "That is now the domain of Square. You could be disintermediated by this disruptor. If you put the merchant through your traditional merchant acquiring process you are going to lose them to Square. It is really simple to secure your account (with Square)."

Hansen observed that "something that has been the bread and butter for so long in the banking industry is not where we would expect rapidly changing landscape to be, but that's what we're seeing."

All of that raises a question of EMV, the standards for which every credit union with plastic cards has had to prepare for. Will EMV allow issuers to leapfrog services like Square?

"Adoption of EMV is upon is," said Hansen. "The traditional mag stripe dongle is going to have to adjust to that.

"The phone camera is becoming the way to present an invoice, as is the QR code bill pay technique," continued Hansen. "That's where you have a QR code on the bill, including all the info needed to set up a bill pay. If your mobile billing system doesn't already see a biller set up for that bill, it asks if you want to set one up. We believe a better route is for NACHA to push QR codes on billing in America. That means if you change FIs it's not a problem; it's just a matter of shooting pictures of that bar code."

In the consumer market there has been a great deal of speculation about what Apple will unveil as the Next Big Thing. Since Steve Jobs' departure from the company, the speculation has seldom been met with delivery. While we await that, what about Apple in the business space?

"I think Apple will always be relevant, but it's a matter of degree," said Hansen. "As we build other systems in the future we will have to take into account, 'Is it browser-deployed or is it an app?' We're doing a lot of development for Apple today but it tends to just be in consumer-facing applications."

Not sure why, but for some reason I foresee new interest among some in that Association of Amish CUs.