ORLANDO-Mastercard's chief product officer believes there are four trends in consumer behavior and payments that credit unions should be watching.
Tim Murphy told PSCU Financial Services' Mopro meeting those trends are developing rapidly.
"Courage and change are two really good words to frame the conversation about the future of payments," said Murphy. "This is a period of enormous change in our industry. I've been with MasterCard 13 years and have never seen such a confluence of change happening. You don't need to be afraid of that change. You have an extraordinary position. You have the strongest relationship with consumers in financial services today."
The four big trends, according to Murphy, are digital convergence, changing POS in the United States, delivering value beyond payments, and segment-specific solutions. Here's a look at what he had to say about each.
Murphy noted the physical and digital worlds are converging at home, at the register, in the aisle and anywhere else consumers can be found, thanks to mobile devices.
"This is becoming critical to thinking about the future of commerce," said Murphy. "The goal is to create more secure, easier-to-use shopping experiences for consumers. Consumers are looking for an integrated, simple shopping experience. That's really what digital convergence is all about."
Murphy noted that it's estimated that by 2015 $1 trillion will be spent via mobile devices, and just one year later it's estimated that will rise to $3 trillion.
"It's not about wallets. It's about changing the conversation. The end-state solutions with merchants haven't been invented yet, and that gives you as credit unions the opportunity to experiment. There are digital solutions in the market now; my suggestion is don't sit on the sidelines. Pick a partner. The integrated digital wallet gives members a powerful and simple way to manage digital payment options. Merchants can create an exciting omni-channel shopping experience."
Murphy added a cautionary note: "Make sure your wallet provider has you embedded in that payment process and that you are not anonymous in the payment chain."
MasterCard offers the MasterPass mobile wallet, which recently went live with its first credit union, Lake Trust CU.
The biggest change in POS is no secret: the move to EMV with plastic cards in the U.S. But the fact it's not a secret does not mean every credit union has taken action in response to begin replacing mag stripe cards.
EMV, or chip-based cards, are more secure and offer greater interoperability, especially by American cardholders when in Europe, where EMV is already the standard.
"EMV's more powerful and secure technology can help you to create a highly interactive payment experience for your member," said Murphy. "Versus the mag striple, it allows for flexible content, is active, high capacity, and can be tailored to your needs."
Mastercard and Visa have both agreed to a general timeline for issuers to move to EMV over the next few years.
Value Beyond Payments
The once-hot daily deals industry has cooled considerably, with high-flying Groupon now struggling with its business model. But that doesn't mean there isn't ample opportunity in the space, said Murphy, who believes credit unions are well-positioned to leverage consumer preferences, pointed out that 47% of consumers have said they would be interested in daily deals offers from their financial institution.
"The daily deal space is struggling right now, but it's driven by two factors: One, the financial crisis and the recession and consumers increasingly looking for ways to manage everyday spend. And two, the second main driver has to do with merchants and interactions in their stores. They are putting much more focus into using social media and digital environments to interact with that consumer."
Murphy said credit unions are in the "driver's seat" with merchant-funded rewards, because offer-aggregators such as Groupon lack spending insights, while merchants lack scope. "We can demonstrate to merchants that we can help them with targeted offers that delivers ROI. One challenge with the daily deals model has been the lack of targeting; it feels like Spam. You get targeting by leveraging data and access to consumers. You know how your members spend. There are innovators working today that allow offers to be targeted to your members using the spend data that you provide them."
Segment Specific Solutions
It is "deep insights into consumer behavior is the basis of innovation that works," according to Murphy.
"My concern for credit unions is that people are coming after your best members. You need to start thinking of them as segments so you can retain your very best members. You need your very best members so you can support your overall membership."