SAVANNAH, Ga.–When it comes to payments, what’s going on with digital, with merchants, with same-day ACH? Does your credit union want to be a landlord or a tenant?
Those questions and others were discussed during a payments panel at the CUES CEO/Executive Team Network here.
Moderated by Steve Williams, principal with Cornerstone Advisors, the discussion focused on what a credit union’s payments action plan should look like for 2017.
The panelists included Joe Little, Account Leader, U.S. Markets, with Mastercard; Shazia Manus, CEO of TMG; Dean Young, SVP-industry engagement with PSCU; and Caroline Willard, EVP-markets and strategy with CO-OP Financial Strategies.
Here is some of what was discussed during the Q&A:
Williams: In this evolution on the payments chess board, what are the big takeaways in the dynamic in issuers, brands, etc.
Little: There are a lot of trends, the biggest being with the merchant community in a post-Durbin world. They are doing things to influence routing and attempting to improve the consumer shopping experience. Second, with the Internet of Things, any device connected to the Internet will be a payments device. As an issuer, how do you make your members’ cards the default card? Card on file is another trend and how you make the decision to secure the default position is important to non-interest income.
Williams; We saw the retailers go out with strong attempt with MCX to own a bigger share of the pie. What do you see from retailers in a post-MCX world?
Young: MCX is dead. No, it’s alive. It depends on who you ask. At the end of the day we are going to see the merchants get more creative. I still question whether we will see a banding of the merchants, but it sure feels like there is a technology coming or that is here. When we walk into a store, it’s ‘Hello, Dean, we know you were looking at a fishing reel last week. It’s in aisle 14, and Joe’s there to help you.’ And then you get another message when you leave the store. We feel like Beacon technology will have some challenges, but we like Beacons.
Willard: I think last year on this panel I disclosed CO-OP had some conversations with MCX. We wanted to stay in the mix. Well, you know what happened, they weren’t willing to come to the table with any sort of remuneration that we would accept. It wasn’t worth our while to hold the accounts. CurrentC has imploded, but MCX is still alive. I agree that what is going to happen is even if we don’t get the consortium model, we are going to get merchants doing a better job of blending the online shopping/in-store experience.
Manus: CurrentC, from everything we know, it is now more of a consulting technology company. There are two reasons: the merchants didn’t want to disband their own brands and couldn’t come to a common, unified brand. The other aspect was the data assets; they each want to control them. I think with technology, whatever the type, you have to put the consumers into the heart of this experience. It’s an ‘and’ experience. The other component is interoperability. The card or digital device has to work. The muscle memory of swiping and leaving is pretty strong. The dip-and-wait is not as strong.
Williams: Apple Pay is now two years old. It’s evolution, not revolution. The real story, I think, is tokenization as an architecture or technology. Could you share what is tokenization and the bigger story around what Apple Pay is going to mean to credit unions?
Little: Tokenization is where you no longer are sharing the primary account number of your member with another entity. One of the things you’ve got to do is make a fairly quick decision on what role do you want to play in this ecosystem. Do you want to be a tenant or a landlord? Do you want to control your members’ experiences? If you are a tenant you are subject to the landlord. You want to own the experience and you can do that with a branded wallet. With Apple Pay, I think it’s really taking off, but Samsung is really doing some good things, too. They have 60% share.
Williams: What about some of the clunkiness in all these payments processes?
Willard: if we look at what happens when a member’s card is compromised, how can we make that as good an experience as it can be? What we’re looking at is how do you have a two-way text message with a member and ask, ‘Did you make this purchase?’ And the member says, ‘No I did not.’ The Nirvana would be a way to digitally re-issue the card. That’s the kind of world I think we need to lead to. It takes the clunkiness out of those typical transactions.
Williams: What about owning the experience for the member?
Young: It’s the data. It’s not only the transaction, but how do you turn that transaction into an interaction. On one side you call it loyalty, on the other you call it rewards, but at the end of the day it’s about taking the friction out of the experience. I have yet to be behind a person in line and see them use the pay device. The digitization of the card and how we make the experience better is about the choice; members will always want the choice. No matter what we do or develop, it’s still about the transaction.
Manus: Obviously, the merchant adoption rate is only 40% of terminals are EMV. And there is still not a consistent standard for contactless. So that has created quite a bit of challenge around the back-end of tokenization. We have work to do to provide the seamless, lifetime component. That is the foundation. I would say we are very much in the infancy stage. Soon, the standards will come and then it will move to a new value chain with new players who define the value.
Williams: Same day ACH: Everybody keeps hearing it; the ops folks say it’s coming. The de-coupled thing is being looked at more. What about same-day ACH? How does a CEO prioritize?
Young: For me, it goes back to faster, faster, faster. Your members want things quicker than real-time, so no matter how fast we go they want it faster. I don’t know that if I’m on the bandwagon that all of a sudden the whole world will be decoupled. The rails haven’t changed because they work pretty well. I can’t imagine undoing the rails.
Manus: Same day ACH does provide value to the businesses, so they can manage cash better. For issuers, you have less time to police a lot of transactions. That’s the reality. In the back office typically you have relied on staff. You can’t manage the volume of transactions that’s going to come in the two windows. We also need to think about once a payment leaves the credit union’s domain, it’s gone. So we have to look at that.
Williams: There must be all kinds of laboratories at MasterCard about security technology, so what are some of the really impactful things that are coming around fraud?
Little: A number of things are happening: geolocation, digital fingerprinting, authorization IQ—is your member really making this transaction? The talent that is out there with schemes to defraud you is scary, but we’re trying to get ahead of that. EMV will help with some of that. I think you are going to see more and more tools in place to help with better decisioning. (The challenge is) when you turn off a member’s transaction, will they just pull out another card? Now you’ve lost the member’s top of wallet.
Williams: What biometrics are TMG looking at?
Manus: An organization called Fast Identity Organization (FIDO) is an alliance that is bringing in all the players who were responsible for standards around tokenization and EMV. So the first thing is having a standard; without it you can’t scale and you can’t roll it out. Once that is in place the next iteration obviously would be to incorporate touch ID once Apple opens it. Pay by voice, I think that would be my next thing to focus on. P2P has moved to a different level; Venmo is allowing payments to move, and Siri is opening up third party developers to build interfaces, which is interesting. I think Apple and Android will allow AI to develop these interfaces so you can plug in the voice by pay.
Williams: What is the best way for a payments executive to interface with you about the pipeline? They don’t know if something is immediate or three years from now.
Willard: Blockchain is a good example. TMG and CO-OP got together to work with Mercator on a white paper on the topic of blockchain; one of the things we want to do is refine the collective BS meter. We all need to be able to make good decisions and sort out the hype from what’s real, sort out what’s imminent from what’s long-term. What do you need to be doing right now? The answer is not much, but it’s worth watching. I think that’s what processors owe the movement, to help you sort through the hype.
Little: We need to do a better job as a network, too. We are a technology company, and we have to take into account the stakeholders. We as an organization are really focusing on that role.