Mobile Payments Provide Benefits to Members and Merchants

As the adoption of mobile banking increases, mobile payments are also seeing increased usage. What should credit unions know about this emerging market?


Mobile payments have continued to grow in both adoption and the accessibility of the technology that drives them. As mobile banking becomes increasingly popular, credit unions are gaining a foothold in the mobile market that will make the transition to mobile payments even easier.

With 82.4% of Americans now owning cell phones, individuals rarely go anywhere without them. For members, making payments by phone allows them to use a device they already carry with them. Eventually, as cell phones become a major source of financial transactions, we may see an individual's need to carry cash diminish.

Mobile Payments in Retail Environments

When discussing mobile payments, there are two major types: merchant and person-to-person. Phones that have the capability for contactless payments will be embedded with either RFID or near-field communication chips that can work with the existing terminals already in place for contactless card payments. One added feature that mobile contactless payments offer above contactless cards is additional security. If the chip inside the phone were integrated into the phone's processor, you would have the ability to require a password or other security measure in order to verify the payment. This prevents unauthorized access to an individual's accounts if the phone were lost or stolen.

For retailers, there are additional benefits to this technology. Initially, the benefit will come in the form of a lower adoption cost. As more retailers begin to accept contactless card payments, the transition to mobile payments is nearly seamless. An added benefit to the retailer comes in the form of increased transaction speed. Individuals can typically access their cell phone quicker than they can remove their debit card from their wallet or purse. As people are able to make their payments at a faster rate, retailers are able to move customers through the line faster, increasing customer satisfaction, and decreasing the number of employees or registers that need to be maintained.

Person-to-Person Mobile Payments Take Off

The second major type of mobile payment includes those payments that are made person-to-person. The key market for person-to-person payments is smaller value transactions that are currently handled with cash. As mobile payments become more prevalent in a market that was previously dominated by cash, it becomes important for credit unions to ensure they are involved early on to ensure they gain a foothold in this emerging market.

While smaller dollar transactions between individuals will make up the majority of mobile person-to-person payments, there are many other applications for the technology. Individuals already use mobile payments as they purchase ringtones or games for their cell phones. Additionally, individuals can use their cell phones in order to add balances another person's prepay account. As individuals become more comfortable using their cell phones to make payments, the variety and dollar value of these transactions will also increase. Recently, a partnership between Radio Shack and Western Union began a program to allow immigrants to sent remittances back to their home countries through their cell phones. The driver of this initiative was that cell phone access is much higher among Hispanic immigrants than access to internet connections. As this program and others like it take advantage of mobile payment opportunities and cell phone adoption, the market for mobile payments will continue to grow.

As mobile payments become more prevalent in both retail and personal payments, credit unions need to be aware of the changing landscape of this payment method. As members become more comfortable with these payment methods, credit unions that are prepared to respond to these trends will have the most to gain. An increased presence in this emerging market could yield strong benefits for the credit union and its members if executed properly.