While members wearing payments devices seems novel, supporting the back end for this is manageable.
The mobile wallet has exploded into a mobile wardrobe now that payment initiation devices have nestled into things credit union members wear.
Visa used the 2018 Winter Olympics to introduce scarves and gloves with embedded payment chips, leap-frogging Fitbit and Garmin in the race to put payment capability into whatever is right there on the consumer’s body when an impulse to buy hits. No more straining to take off a glove, reach in a pocket or purse, pull out a plastic card and insert it in a reader. That would be primitive.
Anywhere a near-field communication chip smaller than a dime can be attached could become a payment initiation device. Glasses. Earrings. Canes. Under the skin between a person’s thumb and forefinger. How can CUs with modest budgets hope to keep up with this proliferation of technologies?
Actually, it’s not all that hard because what’s proliferating are gizmos that merchants, consumer products companies and technology device manufacturers are producing. When used to make a purchase, they all trigger a card transaction that CUs can accommodate fairly easily, explains Lou Grilli, director of payments strategy at CUES Supplier member Trellance, a consulting firm once part of CSCU, based in Tampa, Fla. The initiation feels innovative. The rest is traditional.
The key is making sure your cards are enabled for NFC payments and tokenization because wearables use that technology, Grilli explains.
“Credit unions have to tokenize their BIN (bank identification number) ranges,” he notes, which can typically be done by contracting with the CU’s issuer. “If a member tries to load a card that isn’t tokenized into a wearable device ... it won’t work and the member probably will try to load a different card.” Tokenization is state-of-the-art security for card payments, but not all CUs have converted yet, he notes.
If a wearable payment device is lost or stolen, it could be used fraudulently in spite of tokenization, but only if the thief can authenticate with a PIN, thumbprint or face in the case of a watch or phone, or only until the device user turns off the card behind the device in the case of a ring, clothing, sticker, or glove, Grilli explains.
The most popular, most robust wearable is probably the Apple Watch, Grilli adds. He uses his.
“My CU supports it, and it’s faster than using a card, but it doesn’t work everywhere. We’re still a long way from not needing to carry physical wallets.” Most wearables are simply proxy cards, but the Apple Watch can extend a CU’s mobile banking service so that wearers can see account balances and receive alerts from their CU, he explains.
The Apple Watch is an iPhone satellite, notes Sabeh Samaha, president/CEO of Samaha & Associates, Chino Hills, Calif. Some things the iPhone can do in mobile banking that don’t require much screen space can be passed through the phone to the watch, he explains, like account balances and alerts. The watches are made so a chosen card can be presented through the watch, just like the phone, and used to make payments by tapping the watch or passing it close to a NFC reader, he explains.
Leading a Short Parade
Ram Ridgeway is pretty sure his CU was the first financial institution in the U.S. to offer mobile banking services through a wearable device. Through Wright-Patt Credit Union’s offering, members of the $3.8 billion CU in Dayton, Ohio, could see balances, recent transactions or how to find the closest branch or surcharge-free ATM, says Rideway, director of retail support.
Offering wearable banking didn’t cost Wright-Patt CU much time or money, and Ridgeway is glad because members have shown little interest.
“The attention was good for our reputation, but very few members use the service,” he reports. And he knows why, because he wears an Apple Watch and never uses it for mobile banking.
“It’s just easier to do it with the iPhone,” he notes. “It doesn’t really offer additional convenience.” And it has to be used in close proximity with an iPhone that is turned on because the information has to flow through the phone to the watch.
As this example suggests, payment wearables are cool. Whether they are useful is another matter. Wearables are proving to have limited appeal for mobile banking access, reports Scott Hess, VP/UX, consulting and innovation at Fiserv, a CUES Supplier member based in Brookfield, Wis.
“We’ve had a mobile banking app for a watch for years but seen little interest. They’re mostly good for notifications. And they’re not much used for point-of-sale payments,” he adds. That could change. “As more fitness wristbands come with NFC chips, credit unions may find more interest in connecting their cards to those chips and making sure the cards are tokenized.”
Ridgeway’s Apple Watch may be useless as a mobile banking extension, but it works as a simple payment initiator. He uses it a lot to pay for stuff with his Wright-Patt CU credit or debit card. “I love using Apple Pay with the watch. That’s more convenient than doing it with the iPhone.” The security is top-notch because it’s all tokenized and the user has been authenticated with a six-digit PIN, he explains. He is okay to let other FIs go first with Fitbit and Garmin payments. “We want to be wherever our members want us to be, regardless of the channel, but in this case we’ll wait for our processor to develop a turnkey process that we can opt into,” he explains.
For most CUs exploring innovative payments, the vendor relationship is critical. Technology partners make it easy for CUs to support digital wallets and wearables, says Jon Rosner, VP/digital card service at Fiserv. “All a CU has to do is give us a digital image of the card they want their members to put in a wallet. We do the rest. It’s pretty turnkey for them.” The cost, he says, is a one-time set-up fee and a monthly maintenance fee, plus a fee for cardholder provision notification, the email or a letter members receives from the digital wallet provider whenever they add a card.
Without a progressive, responsive mobile banking provider, a CU can be hamstrung, Grilli warns, so changing mobile banking vendors may sometimes be necessary. That change is a lot easier than changing a core processor, he says, but there’s real pain in getting members to switch their devices. You can’t really complete a conversion until every user converts, he points out.
$17.6 billion BECU, Seattle, is a reliable leader when it comes to adopting payments technology, so it’s no surprise that the CU recently went live with card payments initiated through Fitbit and Garmin wearables.
“In just two months, use is growing, but it’s still tiny,” reports Ken Myhra, director of retail payments and deposit products. Massive adoption is not important. “We’re not shooting for volume, but making sure our members see us as relevant.” Enabling those devices was relatively easy, he notes. “We did some heavy lifting several years ago when we developed our payments strategy, deciding that we wanted to be there as innovations came on line. Adding devices now is almost turnkey. It takes a little tweaking on our part and on our processor’s part, but just a little.”
Standards are key. “As long as the payments are tokenized and work through MasterCard and Visa and conform to their standards, we’re generally on board. If someone came up with a NFC chip that wasn’t standard, we’d be skeptical of getting involved,” Myhra says.
Speed matters to BECU. “Our goal is to respond to members’ preferences quickly,” explains Nidhi Shandilya, digital payments senior manager, “to satisfy them before they look for an alternative. We want to be near the head of the line of fast followers. We know that not all bets will pay off, but we’ll take that chance.”
$600 million Greater Texas Federal Credit Union, Austin, offers the three smartphone payment options on either the phone or the watch, but the phone is far more popular, reports Eric Jensen, AVP/card services. “The watches just aren’t being used for payments,” he reports. “About 95 percent of those transactions are done with the phone.”
A Pause on the Pumps
The card payments revolution that embraces EMV and NFC chips has missed one important, high-volume segment—gas pumps. In theory, the challenge is for gasoline vendors to catch up, not for financial institutions to prepare. Gas dispensers represent a lot of card payments, Rosner points out, and CUs need to be ready for them to upgrade their point-of-sale technology. That means card portfolios need to be EMV-compliant and support NFC tokenized payments, he says. “It’s time to do that now if you haven’t already.”
The liability shift for gas pumps has been postponed again until 2020. When the pumps are ready, CU EMV cards should work. And CUs will rejoice because card fraud will go down. Swiping counterfeit cards at gas pumps is a popular way for fraudsters to see which ones will work without buying anything. (The good ones reset the pump to zero.) If a CU’s fraud detectors see a lot of swipes without transactions, that should be a red flag, he points out.
If all of a CU’s outstanding cards are EMV-compliant, accommodating gasoline dispensers shouldn’t require extra work, Samaha says, but it could cause a spike in calls to the service center if the member experience is confusing. Alert CUs should have staff buying gas with the latest technology as soon as it rolls out in their market and then preparing call center staff to help members with what they will encounter, he says.
A Sea Change
But by the time gas pumps are EMV-compliant, cards and chips may be irrelevant, Grilli suggests. “Connected cars are being enabled to initiate payments, among other things,” he points out. The wallet in the driver’s phone or in his car may communicate with the controller in the gas pump in a variation of the NFC transaction, which, if it’s tokenized, would be even safer and more convenient than inserting a chip card, he explains.
Waiting for petroleum retailers to catch up to EMV technology could be a mistake, adds consultant Richard Crone, CEO of Crone Consulting LLC, San Carlos, Calif., because that’s not where they are headed.
“They’re moving to e-payments right now, but they’re not doing it with EMV and NFC,” he says. “They’re doing it with their own apps using facial recognition, presence detection and Bluetooth Low-Energy technology. Credit union card issuers will need to simplify how to integrate credit union payment accounts into these apps.”
CU leaders who think adding wearables is no big deal because they can be implemented easily and run on existing infrastructure are missing the point, Crone argues. These payments are part of a sea change that is a really big deal, he notes. CUs need a payments strategy embedded in their members’ lives, not just their banking practices.
Right now, 150 million consumers are using smart wearables, with 200 million projected by the end of 2018, he reports. A third of those are Apple Watches. But the fastest growth is wearables that monitor health, which is what CUs will need their mobile banking apps to align with, he predicts.
“This is the massive new path for literally taking the pulse of your members. It could easily be the gateway to biometric authentication and more secure payments.”
Battle for P2P
If members aren’t sure they want wearables, they do like to be able to pay other people electronically. Venmo, which bypasses financial institutions, has been a huge hit, and FIs are countering with Zelle. Zelle is a hit, Fiserv’s Hess reports.
“The first big banks to roll it out are reporting volume three times higher than expected,” he notes. “We have quite a few credit unions—the innovators and fast followers—in a queue for implementation. Many smaller credit unions are waiting to see if demand is there. More than half of our credit union clients are opting to offer Zelle.”
The emerging P2P payments space is segmenting to some degree, Crone reports. Zelle is the clear leader over Venmo in the value of money transferred in 2017, $76 billion to $44 billion, while Venmo dominates in the number of active users, 33 million to 19 million. Venmo is growing faster—over 100 percent per quarter, he notes.
Forward-looking BECU was also among the first CUs to sign up for Zelle and is preparing to launch that service this year, Shandilya reports. “If a member wants to use Venmo or Apple Cash, that’s okay, but we prefer they use a service like Zelle that we can provide,” she says. Offering Zelle is “a significant investment for us,” she notes. “We intend to put it right there in their (credit union) mobile/online banking app, not something they have to manage through a separate app.” BECU members have had P2P payments with PopMoney for almost a decade, and they use it for higher-than-average payment dollar amounts, she reports.
Greater Texas FCU members can use Zelle through Visa, Jensen points out, by downloading a free-standing app not connected to the CU’s mobile banking product.
Zelle is not an ideal P2P platform for CUs, Crone says, because it doesn’t provide a social payment option and thus misses all the upside that comes from attracting a social following and marketing platform. Credit unions by nature and charter are socially connected to their members, so they should have a social payment strategy, he argues.
Zelle is better for CUs than Venmo or Apple Pay Cash. If a member funds Apple Pay Cash, Crone notes, the CU has to share the interchange with Apple. The legal parties in the payment transactions bypass the financial institutions.
Technology players don’t claim a seat at the payments table without eating, he notes, and there’s virtually no chance for a CU to charge members for these technologically enhanced payment options.
Standards and Strategy
In all, is technology fragmenting or consolidating the card payments market? Variety is good, Myhra says, so long as the products follow a ubiquitous and consistent set of standards that provide a great member experience, security and processing efficiency, he says.
BECU’s electronic payments strategy gives it “a framework for filtering new opportunities,” Myhra adds. “We evaluate opportunities through that lens.” The opportunities of 2017 were “small, mostly low-hanging fruit,” he observes. “More comprehensive changes may be coming.”
Richard H. Gamble is a freelance writer based in Colorado.