A huge amount of “new” happened among both huge and itty bitty payments players in 2014. Apple, Google, Softcard, and MCX introduced, refined, or expanded major mobile payments initiatives. Among start-ups, 2014 saw a cascade of press releases announcing new apps, processors, loyalty programs, and new intermediaries connecting disparate systems so they can work seamlessly with one another.
In 2015, we’ll see bigger companies (both traditional and non-traditional financial services companies) buying up various pieces of the payments puzzle to assemble what they believe will be payment options that deliver engagement, ease-of-use, value, and excitement to consumers as well as value and loyalty to merchants (and don’t forget, interchange revenue to issuers).
We’ll also see start-ups with significant financial backing acquiring the assets of other mono-line players to position themselves for acquisition (at higher price/earnings multiples), or Goliath-slaying geniuses with must-have products or services.
It’s tempting to say that 2015 may lack some of the fireworks and hoopla of 2014, but don’t worry, there will be some milestone events to look forward to.
Bitcoin is just one of many digital currencies offering both finality for transactions (zero chargebacks) and truly one-stop global value. Merchant chargebacks cost an average of $20 apiece (and that’s just from processors), so each transaction reversal makes bitcoin look ever more attractive. And while bitcoin investors can buy bitcoins in their own domestic currency, its transaction value is the same in Tanzania as it is Shanghai.
Bitcoin eliminates a costly challenge for online retailers who ship globally and want to side-step currency exchange/conversion rates. It makes bitcoin even more attractive and together, these foundational features take bitcoin closer to being a “10.”
MCX’s goal is to introduce a mobile payment app that will allow its merchants’ customers to pay with funds directly debited from their checking accounts thereby circumventing interchange expense on every one of those transactions.
Any money the customer would have saved by shopping at a competitor is automatically loaded onto a Walmart gift card or an American Express Bluebird card.
Altogether, MCX merchants have sales totaling more than $1.2 trillion and their collective aspiration is to divert as much of their credit card sales (approximately $240 billion in annual sales) to their own system, CurrentC.
In the second or third quarter of 2015, CurrentC will finally roll out, three years following its announcement. We have seen members of the merchant consortium testing pieces of the coming technology. For instance, Walmart rolled out its Savings Catcher, which allows its customers to enter their store receipt numbers and Walmart then compares the prices paid in-store with prices offered at major stores in the customer’s area. Any money the customer would have saved by shopping at a competitor is automatically loaded onto a Walmart gift card or an American Express Bluebird card.
What does that show us about MCX’s CurrentC? Principally, we see Walmart’s dexterity with huge and nimble databases that can keep track of vast amounts of multi-store, multi-location pricing data and then return value to the customer on a prepaid/gift card. For the retailer, Savings Catcher shows its databases can deftly manage enormous complexity to produce simple solutions that are hugely loved by the customers who have used it.
Next: Rewards And Loyalty For All! »
Rewards and Loyalty for All!
From 2010 to November 2014, credit union credit card outstandings grew 19.2% while those of their bank and thrift counterparts have only grown by 5.5%. A portion of that growth differential may be understood by the sheer challenge of banks achieving high percentage growth in portfolios that ended 2010 with $664.7 billion in outstandings. By contrast, credit unions ended 2010 with $36.3 billion in outstandings. But more importantly, those wildly different growth percentages reflect commitment to providing unsecured credit to consumers.
Until 2014, banks left the credit card space open to credit unions. Our industry took advantage of that void to market and grow their credit card product line. But now banks are back in the space with enormous marketing budgets and fun new product hooks (think Citibank’s Double Cash Back card that pays 1% cash back at the point-of-sale and another 1% cash back when that purchase is paid off in full).
Between banks bounding back into the credit card market and merchants pushing to migrate debit card transactions (and debit card interchange) to their proprietary and ACH-based payments rails, credit unions are actually well positioned to build relationships and value with their members and maintain their interchange income streams despite all these new initiatives.
How? By making sure every single new account holder walks out of a branch, or logs off a mobile app or credit union website, with a credit card in hand or in the mail. We have to be proactive in offering credit cards and stimulating their use because with merchants pushing ACH payments, our debit interchange will take a hit and credit cards can more than make up for the loss of those transactions.
We also have to loop those credit cards into a basket of relationship rewards. And not just 100 points here or 74 points there, but rather we have to think of accounts, payment instruments, and member activities as our defensive weapon against retailers, and our offensive weapon against banks.
Customers with the largest relationships with their credit union…need to be richly rewarded for maintaining those relationships.
Here’s why it matters. If MCX’s CurrentC comes anywhere close to achieving its stated aim of moving 75% of its debit/prepaid/gift/cash transactions to its own reward rich program, our debit card volumes will take a hit. And in the same way that Target now offers its REDcard as both a decoupled debit and separately, a credit card, it is just a matter of time before the nation’s largest retailers do something similar.
If we can make our relationship rewards programs rich enough, we can actually deflect transaction outflow so that some members may choose to continue building their credit union points balances rather than taking a small percentage off a future CVS purchase.
Customers with the largest relationships with their credit union (both in terms of number of products and account balances) need to be richly rewarded for maintaining those relationships to diminish the value in their switching payments to a direct debit, ACH instrument.
And we can do it. It will be costly and its benefit will be achieved over the next five years, but initiatives that ground our members in the value of the relationships they have with us are the best ways we have to build enduring loyalty.
EMV will continue its deployment and host card emulation and wearables and Bluetooth Low Energy will continue to generate publicity, but they’re already here and they’ll keep rolling out in 2015 and will alter the payments firmament a bit.
But it is the fisticuffs between retailers and interchange beneficiaries and merchants’ efforts to circumvent the card networks that will create the most profound changes in our payments landscape in 2015 and 2016. We can win, but we have to get busy right this very second.
Elizabeth Rowe is a financial services strategist for PSCU.