The Wallet Of The Future

Mobile wallets are poised to take over as the dominant form of payment. Here’s what you need to know before that happens.

Yun Ma

By Yun Ma


Howie Wu, vice president of virtual banking at BECU ($11.6B, Seattle WA), will be the first to tell you mobile is poised to become the dominant banking channel in the future. As the overseer of all digital and remote delivery channels at Washington’s largest credit union — and fourth-largest credit union in the United States — Wu has witnessed rapidly increasing usage of the channel among BECU’s 800,000 members.

BECU members currently are able to execute similar banking tasks on their mobile device as they are through the credit union’s online platform. Now, Wu and his team are investing money and resources into BECU’s mobile platform with the expectation it will replace online as the credit union’s dominant channel.

“We are transitioning our membership away from online, what I would say is our showcase delivery platform,” Wu says. “Online won’t go away, but we’re seeing more adoption in mobile.”

Already, two of BECU’s most popular services among members are mobile solutions: remote deposit capture, which allows members to deposit money into their accounts by snapping a photo of the check, and the P2P service PopMoney, which allows members to use a mobile number or an email address to make a payment to another person.

BECU isn’t the only one watching the mobile space. Many companies, from big box retailers to phone companies to tech giants, have been sinking billions of dollars into creating a ubiquitous mobile wallet solution. And credit unions investing in their own mobile wallets would do well to consider solutions that allow members to make online and merchant point-of-sale purchases as well as initiate person-to-person payments via their smartphone.

But despite the rampant discussion of mobile wallet in the news, the excitement among financial services providers and experts, and BECU’s tech-savvy member base, the credit union is taking a more conservative approach to its own mobile wallet solution.

“We’re holding back on implementing a mobile wallet,” Wu says. 

Given mobile wallet’s fast and steady rise, it begs the questions: Why is BECU choosing to wait? And for how long? 

A Fractured Landscape

PSCU is the largest CUSO in the United States. Headquartered in St. Petersburg, FL, the service organization provides payment solutions to more than 680 credit unions. PSCU CEO Mike Kelly wants to make sure his credit unions try out mobile wallets early in the adoption phase, so in September 2012, PSCU launched a Google Wallet pilot program with six of its credit unions. That program has since expanded to include 35 credit unions with more joining.

“Google Wallet has been a tremendous success so far, but we’re not patting ourselves on the back because there’s still so much work to do,” Kelly says.

In addition to Google, PSCU has also developed pilot programs with mobile wallet vendors such as Mastercard, who has Masterpass, and VISA, who has V.Me. Google Wallet is the oldest and largest program, but competitors are gaining market share. Kelly and his team at PSCU are currently collecting data on the CUSO’s pilot programs and watching what happens in mobile wallet. So far there is no clear frontrunner and no one knows who will become the dominant provider. 

“The landscape of [mobile wallets] is the Wild West right now,” Kelly says. “It’s an incredibly fractured marketplace.”  

Despite the uncertainty, Kelly likes to cite the following example as to why credit unions should invest in a mobile wallet: In 2004, in the wake of the Thai tsunami, Americans contributed $200,000 in relief funds through SMS text. In 2005, after Hurricane Katrina, donations by text doubled to $400,000. And in 2010, after the earthquake in Haiti, text donations exploded to $37 million.

It’s an example that illustrates the adaptability of Americans to new technologies.

“The speed from $400,000 to $37 million in five years is blistering,” Kelly marvels. “The challenge and the call to action for credit unions is, ‘If you sit on the side lines and wait, if you don’t get in the game and get your members acclimated to mobile, you’re going to get leveled.’”

Kelly doesn’t think mobile wallets will replace physical credit or debit cards, but they might dominate both as the primary form of payments and transactions. Before that can happen, though, mobile wallets needs to become, in Kelly’s words, a “richer experience” than existing plastic options.

He envisions a mobile wallet that maximizes the strengths of a smartphone, such as offering coupons or suggesting restaurants based on a user’s IP address and GPS data, and offers features a plastic card can’t.

Obstacles To Overcome

There are a few obstacles that prevent mobile wallets from becoming ubiquitous. One impediment is the lack of a key method for authorizing transactions.

“What’s our standard for authorization type?” Kelly asks. “Is it NFC or a chip or something else?”

Different mobile wallets rely on different authorization methods, many of which require merchants to install special software or hardware. And financial providers like Wu need to see an acceptance among merchants before investing a significant amount of resources in a mobile wallet.

“Merchant acceptance and consumer acceptance go hand-in-hand,” Wu says. “If you think of it in terms of chicken before egg, merchant is the chicken, because that’s what is going to force consumers to adopt some sort of mobile wallet platform.”

Merchant acceptance is the tipping point at which BECU will “charge forward” with a mobile wallet, Wu says. And for their part, merchants are beginning to understand the crucial role they play. In August 2012, several big box retailers, including Wal-Mart and Target, banded together to create their own mobile wallet solution called Merchant Customer Exchange. And Google Wallet has aligned with Macy’s, OfficeMax, Old Navy, and Duane Reade. At these major chains, users can pay for purchases with a single tap of their smartphone.

A Matter Of Time

At the moment, Wu and his team are observing the mobile wallet landscape and watching as other financial institutions investigate several mobile wallet options.

“The big banks have the resources and capital to throw at every solution,” Wu says. “That’s their model. It’s kind of like playing the wheel at the roulette table. They’re just hoping that something will land and stick. Credit unions don’t have that luxury.” 

Wu is keeping his eyes on open-network solutions, as he believes the entity with the best chance of dominating the competition will be one central wallet to which users can add additional wallets. That’s what he sees as one of the more striking features about Google Wallet. It originally functioned as a closed-network entity but now allows users to add other cards.

In a similar vein, Wu envisions a BECU mobile wallet that allows members to use their BECU card as well as add other cards.

“The potential success of a wallet comes down to it being open,” Wu says. “The worst-case scenario is having several closed-loop wallets on one device. That’s going to create confusion because members are not going to know which wallet to use, which makes it easier for them to revert back to using standard plastic.”

Although Google Wallet is an attractive option, Wu predicts Apple might also deploy a solution. Already the Apple-designed Passbook app allows users to store forms of mobile payments.

BECU is watching and waiting for now, but Wu hopes to commit to a single solution by 2014.

“I’m confident something is going to get to the head of the race in the next 12 to 24 months,” Wu says.

For Kelly and the team at PSCU, they are closely monitoring their mobile wallet offerings and continuing to collaborate with their credit unions.

“There’s so much innovation,” Kelly says. “We don’t want to be focused on one thing at the expense of another.”

For now, the mobile wallet victor is anyone’s guess. 




July 8, 2013



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