Even as credit unions are figuring out the emerging space that is mobile payments, there already are glimpses of the next frontier — adding loyalty programs to mobile.

For years the concept of loyalty was simple: consumers used their credit and debit cards to make purchases and earned rewards by doing so. With the advent of mobile payments, however, suddenly the picture becomes much murkier.

Anna Cox, director of credit union growth solutions for PSCU in St. Petersburg, Fla., said there is a "great deal of discussion" regarding adding a loyalty program element to mobile payments as people try to figure out exactly how everything will work together.

"The real hurdle is making it worth the merchants' while," Cox said. "If something is going to impact their bottom lines they think about it, but I think they realize the technology is moving that way and they will want to capture consumers."

Steve Shaw, VP, strategic marketing for digital channels and electronic payments for Fiserv, Brookfield, Wis., said combining loyalty programs with mobile payments "is a very great idea, almost a necessity." He advises to CUs to integrate their loyalty programs as an onboarding tool for the new generation of members.

"Loyalty and rewards drive engagement, drive upsell," he said. "Credit unions want members to use their cards top of wallet on the mobile channel, so loyalty is important."

Shirra Frost, Fiserv's director of mobile marketing for digital channels, said the other important element is developing a mobile banking app.

"The services on the app need to complement or surround the mobile element with alerts on merchant-funded offers," she advised, adding there also could be card-management controls, such as those that give members the ability to turn on and off their cards.

'Fragmented' Landscape

Adding loyalty to mobile "is a great idea and loyalty will be part of every product, eventually," according to Brian Day, manager of mobile products for The Members Group in Des Moines.

"Apple Pay is the only major mobile payment product that does not have a loyalty element," Day observed. "SoftCard and Google Wallet have it, and Samsung Pay is expected to have it. In my opinion Apple goes for simplicity and ease of use, so it makes sense that it would not have loyalty elements at first."

For now, consumers who sign up for Apple Pay can link their accounts to existing credit or debit cards with loyalty programs.

The mobile payment landscape is "fragmented," Day said, although there are a few providers emerging. Over time, Apple will add loyalty-related functionality to Apple Pay, Day predicted, noting the company has patents around loyalty and rewards for Apple Pay.

"Issuers do not have lot of options to offer mobile payments," he said. "It will be interesting to see how Google Wallet integrates with SoftCard. What will Samsung Pay look like? All of that will play a huge role in how mobile payments and loyalty fits in today."

Amanda Smith, strategic product architect for CO-OP Financial Services, Rancho Cucamonga, Calif., said adding loyalty to mobile is is the "next progression" in the mobile payment space.

"Loyalty and rewards will be a value-add to drive adoption of mobile payments," Smith asserted. "Just as loyalty is seen as a necessary component of a successful card program, I think we are quickly going to see loyalty become a necessary component of a successful mobile wallet."

Smith said rewards programs such as Shop Main Street from RewardsNow, Inc., on debit and credit cards can help to keep cards top of wallet in ApplePay and other third-party applications in the market today. She said Member Rewards by CO-OP currently has a mobile app, and there are other mobile loyalty/rewards apps in the space, "but I have not yet seen the integration with a mobile wallet."

Location, Location, Location

Cox said PSCU has a "strong" mobile strategy, including being "very engaged" in Apple Pay and "moving the payment landscape forward." The goal, she explained, is to make the credit union card the card of choice so users can "set it and forget it."

PSCU launched its loyalty app in April 2014. Cox said the app offers a discount that members can experience with their card. It includes a geolocator that can show offers in a 15-mile radius.

"The offers could be discounts or ways to earn points," she said. "We have seen engagement grow. Even redemptions are happening through the app. This is a good fit for Millennials. They want mobile and they want rewards."

Fiserv's Shaw noted America First Credit Union has had success integrating a rewards program into its mobile application. There also is loan functionality: Members can take a snapshot of the VIN, send it to the credit union and get approved for an auto loan on the spot.

"It has engaged a lot of members," Shaw said. "The important part of any loyalty program is members getting offers that are relevant to them based on location. People can find what they want with a discount, which leads to loyalty. Getting approved with a loan is huge loyalty."

Frost said Fiserv has a feature for location-based offers that it did in partnership with Cardlytics, an Atlanta area merchant-funded rewards company.

"We will roll out more as we get takers," she said.

According to Shaw, it is not so much that there are technology barriers to overcome, but there is a need for education. "Consumers download hundreds of apps on their phones and tablets, many of which are financial management-related. You have to make them aware there are things this app can do," he advised.

Frost said privacy is also a concern on the consumer side. "People might not want to reveal where they are," she observed.

Looking Ahead

The Members Group's Day said companies are looking to digitize and store punch cards and coupons, which he said fits in well with the capabilities of smart phones.

"There are a lot of complexities and nuances, but consumers want discounts but do not want to carry around coupons or loyalty cards," Day said. "Consumers have their credit cards, and traditionally built up loyalty points based on their spending. With Apple Pay, other than loading their cards, issuers have limited control of what happens with the payment process. It will be interesting to see how ecosystems open up over time. Until issuers get more control of the payment experience it will be difficult to really frame and create the loyalty experience."

Smith said CO-OP is "continually scanning the environment" and evaluating market opportunities for its credit union clients.

"CO-OP does feel there is an opportunity for credit unions to enable mobile payments within their mobile banking applications," Smith offered. "Rewards, offers and loyalty will be key factors in the success of any wallet. That said, we at CO-OP believe the ideal solution would support existing credit union programs and extend the benefits by creating a strong merchant alignment."

PSCU's Cox predicted there will continue to be "some" loyalty redemptions at point of sale. The merchants need to "accept, deliver and train," she said, acknowledging it is easier with closed-loop payment systems such as what Starbucks offers.

"With a financial institution it is a little more complicated," Cox said. "Listening to credit unions and consumers is really driving us. It is an exciting time in payments. Our innovation team is always researching, developing and designing to see what we can do to keep our credit unions top of wallet."

Fiserv's Shaw said there is not "one killer app that will change everything." Instead, he said the successful entities will be those that deliver an integrated experience.

"It is also about information: credit unions will want to learn more about members and figure out how to engage in the digital world," said Shaw.

Shaw noted many credit union members will never visit a branch, or if they do it is once or twice a year. Therefore, he said, CUs need to figure out how to be available at the right time.

"Wayne Gretzky said he didn't go to where the hockey puck is, he went to where it was going to be," Shaw explained. "Credit unions need to figure out where their members are going to be and what their financial needs are going to be so the credit union can be there for them."

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