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Disintermediation’s Disruption In The Mobile Payments Space

How companies such as Paypal, Amazon, Apple, and Google Wallet have disrupted the credit union mobile payments market.

Nowadays people are more glued to their mobile devices than ever. We live in the digital age, where people are connected online 24/7 and accessibility is key. Therefore, it comes as no surprise that online shopping with mobile devices has been rapidly increasing. According to Forrester’s research, U.S. mobile payments will reach $90B in 2017, a 48% compound annual growth rate (CAGR) from the $12.8B spent in 2012. Credit unions need to stay knowledgeable with the advancing technology and payments innovations or else they face disintermediation as a real threat.

What exactly is disintermediation? One can think of it as disruptions in the mobile payments space. Once intermediaries such as Paypal, Amazon, Apple, and Google Wallet provide members with easy mobile payment forms, these alternative payment providers are getting in the way of the direct relationship that consumers have with their credit union. MasterCard however, have designed their wallet so as not to disintermediate issuers’ brands.

Figure 1: Intermediaries in the Mobile Payment Space

There are five major effects of disintermediation:

  1. Change in revenue streams, potential volume and loss of interchange fees due to changing credit, anddebit and Automated Clearing House (ACH) mix.
  2. Reduced data transparency to issuers due to new merchant of record.
  3. Security threat due to proliferation of personal information to various intermediaries and varying levels of data security in new players.
  4. Credit card and brand become less visible for members.
  5. Member’s experience at risk due to confusion over who is responsible for payment and fraud.

Plastic credit cards are not going away either. Even under the most aggressive estimates, only 25% of credit card transactions will be mobile in ten years.

How should your credit union stay competitive with advancing technology and payments innovations? You should focus on developing innovative payments strategies, leveraging new apps or digital wallets to compete for this share of the market. Without these steps to remain competitive, you will allow these intermediaries access to your credit union members to offer simpler, more accessible or financially attractive alternatives to traditional payments.

Investments need to be made in infrastructure and technology. Intermediaries such as Paypal and Google Wallet have made entry into this market seem easy. PayPal hopes to shift the member base away from credit to cheaper funding sources, such as ACH and stored credit. Not only does this model threaten a credit union financially due to a loss in interchange fees, butlonger term members could begin to wonder what their credit and debit cards are providing them that alternative payment providers cannot. If these intermediaries control the members’ interface, credit unions also risk losing direct relationships with their members and reduced brand value. Once members lose touch with card brands, you can no longer differentiate your credit card products.

Figure 2: PayPal and Google Dominates Mobile Commerce


Google Wallet

The PayPal experience includes:

  • Offers both in-store and online. Manual or auto check-in with real-time 2-way location-based notifications
  • Digital gift cards through a partnership with Blackhawk
  • Pay at table
  • Bill Me Later instant 0% APR credit
  • One-time use tokenized payment codes
  • Beacon alerts customer and merchants to shopper presence
Now on version 3.0, Google has integrated their online wallet and ecommerce support with their mobile offering. The Google Wallet experience includes:

  • Buy With Google widget to websites and mobile apps
  • Google Companion MasterCard prepaid card
  • Send money (P2P) via mobile app or via Gmail, Offers, and Loyalty Card support
  • New standards for Host Card Emulation (HCE), a cloud and token-based payment technology

Disintermediation represents a real change and potentially a real threat within the payments landscape. A credit union should look to tap at least a single individual internally to keep abreast of developments in the market and to decide when it’s the time to act. In addition to making the investments individually, credit unions should align with the right partners that can help them navigate this new digital world.

At Elan Financial Services, we have been helping credit Unions for over 47 years prepare for the next wave of market changes. Elan has strategies in place to help credit Unions competitively compete within mobile payments space. For more information, contact us at 1-800-223-7009 or visit www.cupartnership.com.

About Elan

Elan is leading credit card provider in the industry and offers partners the availability of immediate access to a suite of credit card products that competes with National issuers, technology solutions that cater to audiences across the spectrum, and free access to a marketing engine that helps generate new accounts. Elan has created unique platforms to help their partner institutions compete in the digital space.

For over 47 years, Elan has delivered exceptional credit card products and service to more than 350 credit unions. For more information, call 1-800-223-7009 or visit www.cupartnership.com.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
July 28, 2014

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