DES MOINES, Iowa-As more and more consumers use their smartphones for point-of-sale purchases, CUs are being urged to "think beyond the swipe."

One significant reason for doing so is potentially devastating changes to future interchange income. Brian Day, Dwolla product leader for The Members Group, said CUs need to imagine a scenario in which debit and credit interchange income is cut in half over the next five years.

"Remember, financial institutions do not have a God-given right to control payments systems, especially with all the alternative payment providers that are in the market," he said during a Dwolla-hosted webinar. "Credit unions need to think beyond the swipe. They need to create value through bundles of products that members will pay for."


Cloud vs. NFC

The current mobile payments universe can be summed up as "cloud" systems and/or those based on Near Field Communication (NFC). In the former, users' financial info is retained on the Internet; with the latter, data is stored on a chip in a mobile phone.

In 2012 more merchants are using cloud technology than NFC, which Day warned is potentially bad news for all financial institutions. Even worse news: he noted PayPal and Home Depot have formed a partnership that allows consumers to make a purchase at a Home Depot in-store POS terminal simply by entering a cell phone number and a password-meaning there is no interaction with a credit union or bank card.

In a similar deal, Starbucks has a mobile app that uses its own gift cards on a phone. "CUs need to find ways to gain revenue and keep their brand relevant," Day urged.


Short-Lived Promise

For a short time it appeared Google Wallet would be a potential answer, he continued. It sits on a user's phone but stores a specific credit card, leaving open the option for the consumer to use a credit union-issued MasterCard for purchases. Day said Google Wallet was a "media darling" four to six months ago, but it has since faded.

The new darling is ISIS, the result of a partnership between Verizon, AT&T and T-Mobile, said Day. ISIS is expected to roll out this summer in Austin, Texas and Salt Lake City.

"The wild card is Apple," said Day, which may launch an NFC-enabled phone soon.

Industry watchers are projecting it will take a mere five years for contactless credit cards to reach the 100 million mark, four years for that many mobile banking users, and three years for NFC-enabled handsets.

"This is important for credit unions because payments are the key to their future," he said. "Credit unions must choose to embrace the future or have it dictated to them by the marketplace."

There are three "P's" to keep in mind: Presence, Preference and Payment. Day said Presence refers to the mobile payment system knowing where the user is; Preference is knowing what he/she likes, such as a particular coffee order at Starbucks. The first two lead to a successful mobile Payment.

"Credit unions should be looking at all the products in the market, particularly mobile wallet, and looking for branding opportunities," he advised. "Many products use ACH, not MasterCard or Visa. As interchange declines, credit unions need to form partnerships with area merchants-credit unions can be the conduit between merchants and their members."

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