Alliance Credit Union’s ($375M, San Jose, CA) technology-fueled marketplace is the perfect environment in which to take the pulse of developments in the payments space. What happens deep in the heart of Silicon Valley allows credit unions to examine trends that might expand across the financial services industry.
With a wealth of online and mobile capabilities, Alliance has already migrated many of its traditional financial products and services to more efficient, secure remote delivery channels. But the institution still sees untapped opportunity, particularly with regard to payments.
For example, Alliance posted 17% annual credit card growth as of 1Q 2013. Credit cards are a bright spot in the credit union’s portfolio; however its penetration rate for the product is only 6.6%. Alliance is consciously scouting untapped resources to boost the attractiveness of its card offerings, drive interchange earnings, and reinforce its technological foundation.
As part of these efforts, the credit union partnered with PSCU in 2012 for a Google Wallet trial. The trial went live to Alliance’s 40,000 plus members during the second quarter of 2013. Below, Val Ovrootsky, vice president of technology for Alliance, shares his thoughts on why this was a smart move for his credit union and explains how other delivery channels might play an increasingly important role in payments.
Tell me about the evolution of the mobile wallet concept at Alliance? How did you get involved and what type of potential do you see for this technology?
Val Ovrootsky: Last year, as we gathered our executive team to review our branch strategies, we noticed more and more members were moving to Internet and mobile banking for their transactional activity. Our members were asking for more mobile applications and new functionality, so we were looking to see what we could do to bring ourselves in line with that.
PSCU is our credit card provider and was one of the early adopters of Google Wallet. Last year, we started to work with PSCU to see how we might promote our cards more effectively through a wallet option. This current trial is a combination of meeting our internal needs while embracing PSCU’s proposition to be early adopters. We went live with Google Wallet early this year and are still collecting usage information. When we look at the possibilities for promoting our cards and giving members more options to pay, we consider it a good move.
Were there any signs in your membership or marketplace that indicated Alliance would be a good fit for this type of trial?
VO: We need full retailer participation if a member wants to use Google Wallet on their mobile phone. In other words, merchants need to have the equipment to accept mobile payments. Previously, the adoption rate among retailers was not great. However, now we’re seeing merchants start to make use of this option. We anticipate it will be at least another six to 12 months before the retail side of mobile payments takes off, but we want to be prepared for that.
Alliance Credit Union
HQ: San Jose, CA
DATA PROCESSOR: Fiserv DataSafe
HOME BANKING: Intuit Financial Services
BILL PAYMENT: Intuit Financial Services
MOBILE BANKING: Intuit Financial Services
MOBILE WALLET: Google Wallet
ATM PROVIDER: Diebold
My previous employer was an early adopter of mobile banking. It was slow at the beginning but soon took off and eventually became one of the most important transactional channels. It’s more effective for us to be an early adopter of the mobile wallet, and we expect it to be widely accepted in the future.
The other benefit of Google Wallet is you can use it online, and even though there is a lot of competition out there such as PayPal, Google Wallet is an important player in the mobile market. We think getting our card top-of-wallet in all of these online transactions will not only promote the Alliance brand but also generate more interchange income.
In terms of wallet providers and point-of-sale delivery systems, there are a lot of options. Why is Google Wallet the best way to go?
VO: The Google brand is especially strong here in the Bay Area. For our California members, Google Wallet is going to be the most recognizable and successful option. And for our North Carolina members as well as for the rest of the country, it is still a well-known brand.
What metrics will you use to gauge success? What other benefits are you expecting?
VO: After we determine the initial impact, getting our card top-of-wallet for members will be the biggest priority. We anticipate an increase in interchange fees, so if that occurs we’ll be following up with some additional analysis on member usage to see how those increases correspond to each other.
We also believe adopters of the mobile wallet will be a great target audience for other mobile initiatives, such as person-to-person payments and mobile remote deposit capture. And because these users won’t visit our branches as often, it will also give us an alternative audience to target for online and mobile advertisements.
As far as data collection from the wallet, there will be some analytics-related information we can get from Google and PSCU, but the details are still being determined. They’ll be gathering information from the wallet just as we will, and analytical tools will mature over time.
What developments are you seeing with regard to physical cards?
VO: After the Europay-MasterCard-Visa [EMV] regulations were adopted, we started seeing some momentum but the actual implementation options for this technology are not yet clear. Like many other financial institutions, we are still in a research period as we determine how to approach EMV conversion. Financial institutions will need to update their ATMs and ensure compliance, and merchants will need to change their equipment. So far, that corresponding technology has not been widely implemented. However, Alliance is in the center of the technology innovation space, so we expect to see more adoption of the new standard soon.
We are seeing requests for EMV from members who travel overseas and a few banks and credit unions already issue chip cards to these types of members. However, EMV cards are two to three times more expensive than a regular card, so we want to make sure we know all the details before we start to issue them.
Will payment technology ever converge to the point that plastic cards will go away entirely?
VO: Electronic means will replace some cards but, in my opinion, they will not eliminate them completely. People like having different payment options.
For example, when mobile and online banking first appeared, some people said ATMs would go away. But ATMs are still an important access channel and they are getting smarter in terms of what actions they are able to handle. I think we will see something similar with card evolution. These channels never go away completely. Instead, they become another option for consumers.