The mobile wallet market has evolved rapidly, with large banks and tech companies sprinting ahead of what smaller institutions can do. But in the process, those companies have made countless mistakes that credit unions can learn from and overcome.

According to First Annapolis Consulting’s March 2017 report, “Study of Mobile Banking & Payments,” less than one in 10 of study’s 1,514 banked smartphone users said they had an issuer wallet. The most frequent issuers cited were Chase and Capital One banks. The good news for credit unions is that 65 percent of respondents said they wanted one payment app on their phone provided by their financial institution.

What consumers want

When asked what non-traditional payment method they would use, 13 percent said Apple Pay, four percent said Android Pay and three percent noted Samsung Pay. Respondents preferred traditional providers, such as their financial institution, 48 percent of the time.

“With mobile wallets, the Apple Pays and Samsung Pays of the world, the future is unclear,” said NCR Corporation Financial Services Division Vice President and General Manager, Payments, Steve Nogalo. “The adoption has been lackluster, as we all know.”

But the strong preference for a traditional financial institution to take the lead could suggest a silver lining behind that lackluster performance.

If credit union leaders determine a mobile wallet offering is important to the CU’s overall payment strategy, executives should differentiate its CU’s mobile wallet from what is in the marketplace, Strategic Resource Management EVP Michael Carter said.

Keep it together

“Consider positioning the offering as an additional method for making payments that will be more convenient for ‘some’ members. Be sure that the offering is a subcomponent of the overall mobile banking offering the credit union provides members,” said Carter. “The offering must be embedded within the mobile banking module, not separate from it — no one wants to have to open another app when there is an existing one that should do the same thing.”

Still, there’s a lot of uncertainty among credit unions and banks about which type of mobile payment is going to be the best investment, in part because of the lack of clear data.

Steven Nogalo, VP and general manager of NCR Corporation's Financial Services Division
Steven Nogalo, VP and general manager of NCR Corporation's Financial Services Division

One aspect of digital payments that credit unions and consumers alike are showing more interest in are person-to-person payments. Indeed, over the last year, questions and queries about P-to-P payments have flooded into NCR from its credit union clients, Nogalo said.

“These credit union clients are looking for guidance on how to navigate the path forward and find that right balance between investing in what are by-and-large unproven technologies, while not being left behind in the process,” said Nogalo. Asset class, security concerns and member strategy will inform respective approaches, he added. “There is no one-size-fits-all answer.”

Behind the next big thing

What’s been driving that interest is not Apple Pay or Samsung Pay, but rather Zelle, the multi-bank P-to-P network that recently relaunched with a common branding language across participating financial institutions.

“They are embarking on a very ambitious direct-to-consumer advertising campaign and we expect to see some significant tracking in the marketplace as a result,” Nogalo advised.

Who’s Zelle?

Zelle — which counts CO-OP Financial Services, FIS, Fiserv, Jack Henry & Associates, CI Worldwise, CGI, D3 Banking Technology and IBM as partners, among others — celebrated the one-year anniversary of its debut this month, and third quarter 2017 statistics showed an average of 65,000

consumers enrolling daily, resulting in the network processing more than 60 million real-time P-to-P transactions valued at $17.5 billion.

Among early Zelle adopters were the $9.4 billion First Tech Federal Credit Union, the $15 billion BECU, along with much bigger banks, such as Wells Fargo, Ally Bank, Bank of the West, Bank of America, Citi, MasterCard, Visa, PNC and Morgan Stanley.

“Our real-time payments network is unlocking new opportunities for an entire industry,” noted Paul Finch, CEO at the bank-owned Early Warning Services, the network behind Zelle. “We have built and deployed multi-layered fraud and risk management technology to enable safe payments in a real-time world.”

No clear answer

Conceding he doesn’t have a crystal ball, Nogalo said his credit union clients are understandably overwhelmed by what digital payment medium will make the most sense. And to date, he said there isn’t a clear answer.

But by joining Zelle, credit unions can take advantage of years of trial and error that the mega-banks underwent on their own. Zelle originally came to market in 2011 as clearXchange, and even its founding members — JPMorgan Chase, Bank of America and Wells Fargo — were inconsistent in their timing and presentation of the service.

The launch of the Zelle brand is more than just a marketing exercise; it reflects a genuine shift in philosophy that stems from years of trial and error.

Now or never?

“What people are trying to get their heads around is what they should do — Venmo, Zelle, Samsung Pay, Apple Pay and so on,” said Nogalo. The “sands of the hourglass” are not yet running out, but he said leading solutions will be coming to market next year.

“2018 will be the year that people will have to place their bets or they will potentially be left behind,” he said. “We [at NCR] are hedging our bets because we don’t know which of these solutions will eventually prevail, so we are going to offer our clients a menu of these different capabilities.”

Back to basics?

Strategic Resource Management’s Carter suggested that, ironically enough, more traditional payments might be the key to success. Differentiating between mobile wallets and other digital payments is part of the problem.

“They are counting [e-commerce] payments made via a mobile phone in with payments made with mobile wallets, which can be misinterpreted as evidence of more mobile wallet use than is actually occurring,” he said.

Members can make payments from their phones in numerous ways, including a mobile banking app, a merchant app, a credit card issuer app and/or browser, transferring money using a person-to-person service provided via an app or using a mobile wallet app to make a purchase at the point of sale in a physical store. Carter said related card user statistics, however, are often misconstrued.

Strategic Resource Management EVP Michael Carter
Strategic Resource Management EVP Michael Carter

“I have seen studies that demonstrate a very strong growth trend in mobile payments be used to support a thesis that mobile wallets play a role in generating this growth,” said Carter. “They do play a role, though it is not a significant one … The fact is digital wallets have not succeeded. That said, there is plenty of mobile payment growth, but it is not via digital wallets. Credit unions should look for ways to provide convenience to members using your traditional payment options.”

Since a credit union has the ability to “see” if a member is making automatic or credit card payments on the website of a merchant, utility, mobile phone and/or property management site, for example, Carter said CU executives should develop programs geared toward absorbing this market share.

“After identifying those [members] who are paying bills in this fashion, launch a campaign targeting them that gives them an incentive to use their [CU-branded] debit cards instead,” he said.

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