The New Best Thing: Searching for the Future of Payments Technology

Editor’s Note: In what continues to be a fragmented market, no clear winning approach to the future of payments technology has emerged. But one thing is already clear: Both established companies and high-tech startups are dramatically accelerating the pace of change in an industry not exactly known for moving at warp speed. In a series of occasional articles, Anthem will take a closer look at some of the players and products that are shaping the payments debate.  

Your debit card is not in your wallet.

It was there earlier, when you stopped at the grocery store. Did you leave it at the register? Did you drop it on the way to the parking lot? And do you now have to go through the process of canceling the card and waiting for its replacement?

Maybe. But imagine if you could simply turn the card “off” while you checked to make sure you didn’t drop it in the car, leave it in your pants pocket or let your teenager borrow it to buy gas. What if you could decide – in real time – when, where and how your card is used?

That’s one of the options available with CardNav by CO-OP, a technological innovation from CO-OP Financial Services that should be available to credit unions and their members by the third quarter of 2014. And it’s one more sign that the rapid adoption of mobile devices and the quickening pace of innovation are transforming the way that consumers interact with their financial institution.

“The expanded use and functionality of mobile devices for banking presents credit unions with challenges to keep up with consumer demands, particularly for greater individual control of mobile services,” says Caroline Willard, executive vice president for markets and strategy at CO-OP Financial Services. “Consumers today need and want to be more vigilant than ever to protect their card usage and data. And credit unions will have to have services that differentiate them from competitors so that members reach for their cards first.”

Nearly 56 percent of adults in the U.S. owned an Internet-capable smartphone in 2013, according to a Pew Internet & American Life survey, and nearly half of them used their phones to conduct financial transactions. Only a few years ago, that interaction would have involved nothing more than monitoring account balances. But oh, how times have changed.

Today, members have the ability to make remote deposits or direct person-to-person payments. They can access all of their accounts in a single portal, even if those accounts are at different financial institutions. Mobile apps that are purely informational are already obsolete.

And the result of this technological revolution is plain to see.  Members — especially young members — are simply not satisfied with what was or is, but are constantly looking for and demanding “the new best thing.” Credit unions that can provide that “thing,” a CUNA white paper by Kelley Parks and Lisa Taylor Phelps says, will be the most successful at attracting — and keeping — new members.

Some industry watchers contend that the move to mobile will mean the end of payment methods as they exist today. “It will seem odd,” CU Wallet CEO Paul Fiore told Credit Union Magazine, “that we once embossed numbers on plastic cards, gave those cards to complete strangers such as waiters, performed no authentication, and asked for signatures but never validated them.”

Still others believe the secret lies in easy-to-use mobile technology that moves beyond simple account alerts to a system that empowers members to take proactive control over the debit and credit cards they still want to use.

In a recent CUNA survey of smartphone users, 92 percent said “ease of use” was the greatest benefit of mobile payments – but more than 75 percent said security was a major concern. That’s probably not a surprise, given the recent theft of personal and financial information from Target and other retailers across the country.

CardNav by CO-OP addresses those concerns with an intuitive mobile app that targets key audiences – affluent cardholders; high-volume users; young, first-time card members – who place a high value on self-service capabilities and useful, timely and accessible data.

Unlike alerts, which only let members know that something has already happened, CardNav’s customizable controls give them the ability to prevent certain transactions. Controls include:

  • On/Off:  Members can turn their cards on, off and back on again with a single touch. Cards can be turned on for a specific time period or purchase window, for example; when they’re off, transactions will be denied.
  • Location: Cardholders can specify geographic regions where the card can be used, and transactions outside that area will be denied. If they never travel abroad, for example, members can set their cards to work only in the U.S. Cardholders also can set up a “follow me” travel itinerary to reduce fraud and service denials.
  • Transaction: Members can specify which kinds of transactions to allow — in-store, online, recurring or ATM cash withdrawals, for example. Other types of transactions, such as card-not-present, can be denied in real-time. Cardholders can also set a limit on the amount of a transaction and then turn that same parameter off when they’re standing in line to pay for a big-ticket item.
  • Merchant: Merchant categories can be limited to gas, hotel, travel, restaurants, groceries and electronics — whatever the cardholder mandates. A specific merchant can also be authorized for a single transaction if the cardholder has concerns.
  • Dependent:  Businesses can set controls per employee based on their location and corporate rank, while parents can set controls for themselves or their kids.

“Once they know about the value of card control and alert technology, members will not only be attracted to credit union card programs, but they also will be willing to pay a premium for their substantive advantages,” CO-OP’s Willard says.

CO-OP is also addressing security concerns on another front, announcing just this week that it has signed an agreement with Visa Inc. to make the adoption of EMV chip technology easier for its credit union clients. The long-term agreement will speed development of regulation-compliant debit EMV solutions using a common Application Identifier for ATMs and point-of-sale terminals, the company says.

“This is a major advance in adoption of the EMV standard for debit card transactions in the United States, providing a clearer migration path to EMV for our debit issuers and ATM owners,” says Stan Hollen, CO-OP’s president and CEO. “CO-OP has been working hard to move the payments industry to an EMV common debit solution, both independently and through our participation in the Debit Network Alliance.”

Finding that common standard is a priority, needless to say, in what amounts to a payments-industry version of the videotape battle between beta and VHS in the 1970s. In today’s fragmented market, no clear winning approach has emerged.

Still, the real question is whether the adoption of EMV chip technology is the “new best thing” anyway. Is the integration of card payments with the latest mobile technology?

In May, industry leaders will gather in Las Vegas for the CUNA Payments Roundtable, and mobile apps that provide better member engagement and loyalty are high on the agenda. But so are Bitcoins. And an Australian payments platform called CUSCAL. And, well, you get the idea.

“This will be a landmark year for the industry, as mobile technology, EMV chip technology and the trend toward a cashless society pick up steam,” says Cyndie Martini, president and CEO of Member Access Pacific. “This will be the year the glut of options starts to be weeded out.”

But one thing is already clear: Both established companies and high-tech startups are dramatically accelerating the pace of change in an industry not exactly known for moving at warp speed. Credit unions can lead the creative destruction that implies, industry watchers say.

Or they can sit back and be the ones who are creatively destroyed.

CO-OP Financial Services will demonstrate its CardNav by CO-OP technology on Saturday, April 19, at a Financial Safety Fair being hosted by BECU in Tukwila; details are available online. For more information about the product itself, contact Korine Patterson at 800.782.9042 ext. 2502 or korine.patterson@co-opfs.org. For more information or to register for the CUNA Payments Roundtable, which will be held May 5-6 in Las Vegas, go to events.cuna.org.

Questions about this story? Contact Gary M. Stein: 503.350.2216, gstein@nwcua.org.

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