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To help credit union managers cope with the big opportunities and the big risks in the rapidly evolving payments space, CUES commissioned Decision Strategies International, Conshohocken, Pa., to identify the critical uncertainties on which success or failure will hinge by interviewing a variety of experts in the field. Based on its findings, DSI has sketched two scenarios, a highly optimistic alternative in which CUs enjoy the greatest opportunities and a much more challenging alternative in which CUs battle the greatest adversity.
While the report was being drafted at press time, Jarrad Roeder shared a preview of some of the findings.
Much will hinge on what happens in the mobile wallet space and how well credit unions individually and collectively can keep up with mobile technology innovations, says Roeder, lead consultant on the project.
Will an industry-sponsored and -branded venture like CU Wallet be able to run with mobile technology wizards like Apple and Google? Will consumers, faced with multiple mobile payment apps, choose a credit union offering as having the greatest value?
“A mobile wallet offers various ways to pay for things,” Roeder points out, “and a lot is riding on how well credit unions can compete and influence members in ways that attract users, but also protect interchange income.”
In one scenario, security problems plague mobile payments, driving consumers back to fraud-protected credit cards, which would be ideal for credit union revenue, he explains. In another scenario, mobile payments flourish around merchant schemes that use the ACH backbone and pretty much wipe out interchange, he says.
The future also will hinge on how well closed-loop payment systems like those offered by Starbucks and Macy’s will grow. In a world of physical cards, it’s been cumbersome and inconvenient to carry and present all that plastic, one for each major vendor the consumer patronizes. That hassle has favored Visa and MasterCard.
With digital wallets, that inconvenience could vanish. A smart wallet could even sense which vendor the consumer was approaching and automatically present the right card for payment in the right store, Roeder speculates.
“If the convenience is there, we could see a big swing to closed-loop systems with their strong rewards features, taking transactions away from Visa and MasterCard,” he points out, “or, that fragmentation may not occur. Whatever happens could make a big difference to CU interchange income.”
If payments shift away from Visa/MasterCard, credit unions would also lose valuable spend data and be less able to build successful rewards programs for their members, he adds.
Much also hinges on the success of the CurrentC mobile payments solution. Sponsored by a consortium of merchants, it is due for release later this year. If CurrentC is a hit with consumers and clears transactions through ACH, CU interchange (the interchange fees that merchants hate) could be decimated. But if security concerns sink CurrentC (and merchant databases have proved to be the weak link in most hacking incursions), CU interchange income could hold up pretty well, Roeder suggests.
Much also will depend on how well CUs can collaborate to gain scale, he notes.
“It’s getting harder and harder for individual CUs to compete against efficiencies of scale,” he notes.
He offers an example: A colleague uses shared payments provider Venmo through Bank of America to make person-to-person payments for free. Another colleague uses Venmo for the same purpose but, when adding funds from his credit union account, has to pay a fee.
“The more you have to pass along costs to members, the less attractive the credit union will be compared to large players,” he says. Industry collaborations like CU Wallet could reach competitive scale, but it’s not easy to make collaboration work, he points out.
Another hinge point will be whether the concept of a primary financial institution even survives the impact of mobile technology and the younger generations that love it. They may use many financial service providers, with the wallet being the point of integration, and the idea of loyalty to any one financial institution could become obsolete, Roeder suggests.
