WEST PALM BEACH, Fla.-2012 will be remembered as a year of record member growth, as the year profitability returned to most CUs, and as the year real estate values began to again inch northward, even in Sand States.

But those are short-term matters. In the longer term 2012 will be remembered for passing a much-discussed "inflection point" in terms of how consumers interact with their financial institutions. For an increasing number, there is no need to visit a branch; they're carrying the branch in their pockets and purses.

That "branch" is a mobile device: an iPhone, Android or one of the increasingly prevalent and affordable tablets. The ability to check balances has in little time become old hat; new functionality allows for interactive discussion, video chats with CU staff, the ability to make deposits, and most recently, even pay bills by snapping a photo of the invoice.

For credit unions, the advantages are plentiful, too, the biggest being the opportunity to not only move members to a low-cost mobile channel but to put a dent in one oft-cited credit union weakness: lack of physical locations.

For those reasons and many others, Credit Union Journal has named "Mobile" as its 2012 Story of the Year.


Not Just A 'Channel'

In 2012 it became evident that mobile isn't just a channel; for many members, especially younger ones, it's the channel. iPhones and Droid devices with larger video screens (not to mention tablets) combined with fast, high-quality connections has many consumers on the verge of seeing little difference between visiting a branch in person and visiting it via a mobile device.

A recently issued Bain & Co. report found that mobile banking in the U.S. has soared 50% since 2011, with 64% of mobile banking users in the U.S. indicating that the future ability to use their smartphones or tablets to check account balances would be highly valued.

Still, that value proposition must be explained and marketed. Fiserv recently analyzed data compiled by Mobiliti and found that institutions that have actively marketed mobile banking have experienced an average adoption rate that is twice as high as financial institutions that have not promoted the service. FIs that didn't market the service saw about 10% of eligible persons adopt mobile banking.

Mobile's potential isn't lost on CUs.

"The use of mobile banking will continue to grow rapidly over the next several years, so we're investing in strengthening this technology for our members," Michigan First CU President/CEO Michael Poulos said. "With today's busy lifestyles, we're constantly working to make the banking experience as fast and easy as possible for our members."

Henry Wirz, CEO of SAFE Credit Union in California, agrees. "The fastest growing service at SAFE the last 10 years has been debit card transactions. But we are confident and positive that mobile transactions will grow faster than debit and that the smartphone will become our members primary delivery channel for services. The debit and credit card functions will quickly move to the smart phone."


Think 'Mobility,' Not Mobile

Sam Kilmer, VP-market development with Harland Financial Solutions, Lake Mary, Fla., believes it isn't mobile that should be the Story of the Year, but "mobility." Mobile devices simply aren't about being transactional any longer, observed Kilmer.

"What is really interesting to me, at least until we have full blown mobile payments inertia, is interactional mobile," said Kilmer. "By interactional, I mean how the credit union creates a conversation with the member and does more relationship-oriented touches such as advice, opening up accounts, exploring loan and retirement planning options, et cetera."

Kilmer noted that form factors and the physical motions of how CU employees and consumers do things are being re-thought, as neither party need be tethered to a desk any longer, whether at home or in branch. "It's a game-changer," said Kilmer.

For all its potential, however, Tom Berdan, VP-product management with Harland, believes mobile is an "addition" to the channel line-up, not a replacement channel.

"Clients demand mobility, but this is in addition to IVR, ATM, and the branch," said Berdan. "This cross-channel consumer experience is how the industry will be evolving...Now, all the major retailers supplement their web presence with their branches/stores, so you can order online at competitive prices and pick up at a nearby retail outlet. Apple now has this on their app, along with Best Buy, Nordstrom, et cetera. Thus, they make it easy for you, the consumer. We need to continue to refine our experiences in the financial world to take this approach."


Monetizing Mobile

While mobile can cut the costs associated with in-branch visits, the more tantalizing piece is how to generate revenue. The Holy Grail of mobile is payments, with the ability to make in-person payments using a cellphone (so called "Tap and Go" or "contactless") expected to quickly become a commodity.

Cincinnati-based Vantiv, which provides processing services for more than 800 credit unions, has teamed with Paydiant, a provider of a cloud-based mobile payment and offer redemption platforms to introduce a contactless mobile wallet and payment platform that will enable merchants and financial institutions to quickly deploy mobile payment and ad/offer campaigns for their customers.

Twenty-six credit unions have been participating in a pilot program with PSCU that is testing the Google Wallet mobile payment system, while some 50 financial institutions-more than half of them credit unions-have launched Visa's V.me new digital wallet service (see related stories). Brian Scott, VP with The Members Group, Des Moines, Iowa, has stressed that the payments picture is very much in flux. He noted that while Visa and MasterCard are the most obvious players in payments, "The winner could well be someone no one has their eyes on now, who will come up with some disruptive technology that everybody will want and say, 'I got to have that.'"

Case in point: analysis from Javelin Strategy & Research, which predicted that Apple's "Passbook" will "change the market" by giving it "top of phone" placement with consumers.

Payments are hardly the only revenue channel, however. Another being pursued aggressively not just by financial institutions, but retailers and other players, is transaction-based marketing, which offers a way to monetize digital platforms.

Meanwhile, while most banks are not yet charging for mobile, BB&T and U.S. Bank have both been charging 50 cents per check for mobile check deposit. Other fees are also being tested by other banks.


The Mobile Marketplace

Bank of America, meanwhile, already has 12 million mobile banking customers. It is anything but satisfied with that number, and has launch a drive to sign up more customers by outfitting its teller stations with quick response (QR) codes that can be scanned by mobile devices to download the mobile app.

"Everyone has a device within three feet of them, and their financial lives are no different than another aspect when it comes to mobile," observed one BofA VP.


What About Branches?

Mobile has breathed new life into the debate over the future of branching. While branch networks may not get smaller, many analysts agree that branches themselves will shrink as they increasingly serve consulting and relationship-building roles.

"The branch is relevant but the value proposition and support of credit union brands has shifted and will continue to do so," said Harland's Sam Kilmer. "Branches are about high value and proactive interactions that should be consistent and contiguous with the other channel transactions and interactions. The irrelevant branches are more likely to be those that are purely about the transactional."

Added Harland's Tom Berdan, "We do not see branches declining in our base, but what we do see is more users adopting mobile to supplement their banking experience."


The Risks With Mobile

There remain some thorny issues with mobile, including the lack of standards and two rival devices that dominate marketshare but which are not compatible. But one of the biggest challenges surrounds who holds certain patents in a field in which there are hundreds, if not thousands. That has led to much litigation, with a number of credit unions finding themselves targeted by lawsuits alleging patent infringement over various and often small but critical slices of code.

Another of those thorny issues is security. Mobile's appeal hasn't gone unnoticed by scammers. IdentityTheft 911 last week issued a statement noting that "that smartphone in your pocket is one mother of a data storage device" and is a "goldmine" for thieves.


Real-Time Analytics

Mobile devices aren't just about transactions or getting advice from the credit union. For credit unions they can also be a means of getting something from their members, specifically real-time feedback on service, products and more, allowing credit unions to make changes and improvements on the fly.

Steve Shaw, VP of strategic marketing for Fiserv, Brookfield, Wis., thinks user analytics will someday be real-time. "We will eventually get to the point where you see people, real time, making a transaction on their mobile device or paying a bill and you can send them a targeted ad. For example, if they are paying a loan, let them know they can get a loan cheaper with you."


Natural Disasters & Mobile

Natural disasters have always meant problems for members seeking access to their accounts. Closed branches or impassible roads only exacerbate the problem. As recently as 2007's Hurricane Katrina, one credit union manager actually set up shop in a campground to help members and to dispense cash. But the more recent Hurricane Sandy showed mobile's promise-and its frustrations. Members can access funds, make deposits and payments and interact in real time with their credit union via a mobile device-IF-cellphone towers are still functioning and there is power to recharge those devices.


Mobile Begins At Home

While the focus on mobile has been on moving as quickly as possible to sign up members/customers, at least one credit un ion has recognized that getting employees on board is the most critical step. In Laurel, Md., Tower FCU hosted "Mobile Mania" as part of the annual employee meeting, setting up multiple demonstration stations to let staff preview the CU's mobile offerings before they were debuted to the public. Android, iPad and iPhone apps were available, and employees were able to use the apps first hand, including demonstrations of remote deposit capture technology and the ATM/branch locator feature.


The Future of Mobile

The Pew Research Center's Internet and American Life Project 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.

The appeal of the mobile market is no secret. A white paper released by Andera, Providence, R.I., found that two desirable target markets, Gen Y and well-educated high-income consumers, are very comfortable opening accounts online, and that savvy institutions are scoping up these individuals now. The study suggested that online account opening leads individuals to take multiple products, creating a more sticky, long-term relationship.

CUNA Mutual's John Lass, SVP-strategy and business development, noted during the company's online Discovery Conference earlier this year that mobile platforms and other technologies mean CUs "could be in the midst of a strategic inflection point due to rapid changes in the competitive landscape, digital technology and customer channel preferences."

Pointing to the emergence of iTunes and Netflix and the effect they had on once dominant industries, Lass observed, "The key point here is that digital, mobile technologies and channel shifts all played roles in these industry tipping points. The credit union system now faces the challenges-but also the opportunities-of incorporating digital convenience into the cooperative model.

"Unlike the music industry, the cooperative model provides credit unions with powerful competitive advantages." Lass continued, "There are some tremendously successful examples of credit unions embracing the 'do-it-yourself' banking, and it's paying off for their institutions and their members."

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