GALVESTON, Texas-Consumers have quickly come to expect online access to account information from their financial institutions and soon will expect mobile access, meaning credit unions must be prepared.

That was the message from Aaron Smith, senior research specialist with the Pew Research Center's Internet and American Life Project. Smith said as online banking becomes engrained, the cost of switching FIs rises for consumers.

Mobile banking has moved to the forefront thanks to the rapid proliferation of technology, Smith explained. He noted 88% of adults now have a cellphone, up from 53% in 2000 (and far outstripping the 57% who currently own a desktop computer). More importantly, 46% of adults have a smartphone, with only seniors being slow to adopt these advanced devices.

"Not all cellphones are created equal," he said. "Smartphones enable new uses, including e-mail, Internet access and online banking. This change in use has prompted a change in behaviors and attitudes, as people now think of their smartphones as a necessary part of their lives."


Prepping for Mobile Payments

Typical online banking uses include checking account balances, viewing transactions, bill pay, transfers and receiving alerts, Smith continued, noting consumers soon will expect to be able to perform all of these on their phones.

And if mobile banking expectations were not already elevated, Smith said CUs need to be preparing now for the step after that: mobile payments.

"Smartphones have absorbed GPS devices, gaming consoles, music players and cameras, so the question is: when will they absorb the contents of a person's wallet, including driver's license, cash and credit cards?" he said. "Many companies are betting they will, including credit card issuers and cell phone providers."

There are three levels of complexity in the mobile payment space, Smith said. Small merchants have benefitted from the first level, in which credit card readers are plugged into mobile devices to allow almost anyone to accept plastic without the need for dedicated link-ups via telephone lines.

Level Two consists of direct P2P (person-to-person) financial transfers using mobile devices, including PayPal Mobile, Bump, Venmo, Serve and ClearXchange.

Level Three, the least established, is a smart phone becoming a true "mobile wallet." Smith said some tech industry watchers predict devices will replace the need to carry ID, credit cards or a check book, but noted security remains both a large concern and an inhibitor to adoption.

The Pew Research Center polled numerous experts for their predictions on what the mobile payment space will look like in 2020, he continued. More than 65% believe smart devices will have largely eliminated cash and credit cards in most advanced countries. But a substantial minority maintained such a mass migration will not be complete by the end of this decade.

"Even the optimists who think mobile wallets will be common by 2020 fear consumers will be harmed somehow," he said. "The most common fear is consumers will become overdrawn too easily, with banks making money off overdraft fees."


Fears Over the 'Cloud'

Both the optimists and the skeptics point out consumers cannot drive the process themselves, and Smith predicted many banks and retailers will resist to avoid upsetting the profitable status quo. Another concern: many consumers will not want to have all of their financial details stored on a "cloud" due to the fear they can be tracked and monitored.

Any major security breach along this march to mobile wallet will cause a consumer backlash, Smith said.

"The most likely scenario is a middle ground," he noted. "It is widely believed it will take a long time for cash to disappear completely, which makes sense because it has been around for thousands of years. Mobile payments will be used by some consumers for some purchases, but the majority will hold on to other options and some will want to retain the financial anonymity cash offers."

Smith's advice: stay on top of mobile payment technology as it develops, but avoid making big commitments.

"Don't pay for expensive solutions, but be aware," he counseled. "Try to become part of the 'friend networks' people will be using to make decisions so the credit union is an advisor."

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