Mastering The Mobile Wallet

A Q&A on pioneering in the payments space with the Chief Information Officer of CoVantage Credit Union.

CoVantage Credit Union ($1B, Antigo, WI) is no slouch when it comes to technological prowess. The credit union currently offers its nearly 75,000 members a robust suite of services designed to meet members’ needs at home, in the branch, and on the go.

But rather than bask in the success it has achieved today, the credit union continues to strategically position itself for success in tomorrow’s banking space, particularly in regards to payment technology. In the following interview, the credit union’s senior vice president and chief information officer, Robert Van Abel, highlights a few of CoVantage’s recent undertakings and explains the credit union’s philosophy toward technology adoption.

What does CoVantage currently offer its members in terms of online and mobile service, and what is on the horizon?

Robert Van Abel: Today CoVantage offers multiple Internet and mobile services including transaction alerts, account transfers, online loan payments, and cross-account transfers between unrelated member accounts. In addition, we have a business banking platform with QuickBooks integration for business members and Quicken downloads for our retail members.

Within the next 30 days, our mobile services will include mobileremote deposit capture and bill pay services that are integrated into the same bill pay as our Internet platform. We are also working on an electronic wallet project pilot for our mobile services that will use the Tyfone Side-Tap micro SD card for NFC communication and full contactless Europay-Mastercard-Visa (EMV) transaction processing.

What factors inside and outside the institution caused CoVantage to move in the direction of a mobile wallet?

RVA: We believe the nature of payments is entering a period of rapid change, with disruptive technology impacting traditional payment channels like debit, pre-loaded cards, checks, and cash. Mobile banking provides a secure channel, as authentication is possible on the device, and when coupled with contactless EMV or person-to-person payments, enables a complete electronic payment channel with usability similar to one’s wallet.

It’s important for any electronic wallet to be as portable and easy to use as a physical wallet. In addition, with layered transaction security, the ability to do remote data wipe on the phone, and encrypted transmission, this channel offers vastly improved security over a physical wallet in the event it is lost.

What drew the credit union to this particular mobile wallet solution and when will you roll it out?

RVA: This project is in the conception phase as we work with Tyfone and FIS, but we hope to have a pilot working by early in 2013. It will build on our CoVantage Online Internet platform, which allows members to transfer funds via online or mobile across accounts when both accounts are at the credit union.

What can you tell me about the development process?

RVA: While searching for mobile banking vendors in 2011, one of our criteria was the ability to support mobile payments, including peer-to-peer (P2P). Tyfone was the only mobile banking vendor that had a strategy in place.

This vendor also had an existing mobile banking application for the Fiserv core systems and agreed to work with CoVantage to develop mobile banking that was integrated with our Jack Henry/Symitar core. We have been live for four weeks on this application, with roughly 40 members registering daily over the past three weeks. This adoption is much faster than our experience with Internet banking in CoVantage Online.

What future features will the mobile wallet offer, and when will you roll them out?

RVA: The mobile wallet will include contactless near field communication support, mobile remote deposit capture, and bill pay features. We are looking to sometime in 2012 for these features, depending on FIS’s ability to support these transactions. The initial pilot will take place with a select group of staff and members.

Our plan for the wallet is to function similar to our Load N’ Go debit card, which would allow members to add money anytime but have payment amounts limited to the funds loaded in the wallet. Transactions will also use EMV standard debit processing.

With what carriers and phones is the wallet compatible?

RVA: The NFC cards can be integrated into any phone that allows micro SD cards. In our case, we support Android and certain Windows phones. The iPhone can use the card when installed in a carrier case. To activate the card, we will also be investing in technology that is similar to immediate or instant issuance card technology.

What retailers will you be participating with and how will the technology work within a point-of-sale retail environment?

RVA: Many larger retailers in our area have NFC-enabled readers or multiple-use readers and are preparing for the changes to payment processing. Many CoVantage members also already use our cross-account transfer feature, either online or on mobile devices, and the Tyfone Side-Tap card can transmit or receive these payments via NFC. This will allow members with CoVantage accounts to conveniently transfer payments within CoVantage mobile as well as enable purchases at NFC enabled retail point of sale.

What were the advantages of a NFC-based approach for the member, the retailer, and the credit union? Are there any disadvantages?

RVA: One advantage is the NFC provides communication only when activated by a PIN password and that communication is only enabled in an area of around four centimeters, in order to protect the transaction. Another benefit is that NFC provides automatic coupling when enabled, letting it send information to a >payment station.

There are other approaches for mobile payments based on passive radio frequency identification (RFID) chips, as well as bar codes, Bluetooth, and more, but these options can be compromised in a variety of ways including passive initiation by readers unknown to the user. An example would be a walk-by scanner who tries to read someone else’s card. NFC is an open standard solution and has major vendors supporting it, including Visa and MasterCard.

How will you address any potential security concerns among members over NFC technology?

RVA: We are very focused on security. The micro SD card allows us to authenticate the transaction source on the device. The card is also fully encrypted and can be disabled if the phone is stolen or misplaced.

Any potential loss is limited only to the amount loaded in the electronic wallet. Institutions could actually face greater exposure to loss through a mobile banking application tied directly to a transaction account. We mitigate these risks through layered security in our current bill pay solution and by limiting direct transfers initiated by members to CoVantage accounts only.

What is the cost to the credit union versus other payment options? Where are you looking to see short- and long-term ROI, both on and off the balance sheet?

RVA: There are major costs to enabling this technology, but they may become lower with time as more institutions adopt this payment approach. There is also a push to lock in proprietary payment solutions that use this technology by large companies like Internet advertising companies, phone companies, and several too-big-to-fail banks. These companies understand how this technology will increase wallet share.

It is too early to know if this represents a large opportunity for fee revenue among these companies, but these companies certainly know the value in the data this channel will provide.

CoVantage is strategically engaged in this technology as part of our mission to provide outstanding value and exceptional service to our members. It is important to support open payment solutions and develop mobile payment strategies that are cost effective to our members before this channel is dominated by proprietary and more expensive solutions.

How about developments in physical card technologies? How is the role of the physical payment card changing?

RVA: EMV payment processing and NFC contactless platforms are where traditional card-based payments will change quickly. EMV contactless is a key component of the network channel that electronic wallet payments will ride, but there are also a number of contact-based EMV solutions available today and more on the horizon.

Contact EMV that uses an RFID chip embedded in plastic seems to be one preferred solution as it is similar to the current magnetic-stripe card, but ultimately this is an intermediate solution only.

I believe contactless EMV provides enough usability and security advantages without significant cost above a contact-based EMV solution, which makes a compelling case for contactless being the best solution. NFC has clear advantages with respect to security in transmitting transaction information, especially when compared to vulnerabilities in RFID-based contact readers.

Would you consider your technology adoption strategy to be on the bleeding edge, or would you considered yourself an early adopter or fast follower?

RVA: These efforts are definitely bleeding edge for the credit union industry but probably only leading edge when banks are included. We continue to work with our payment vendor, FIS, to keep the pilot on track and although it has some interest from larger customers, there are few to no additional credit unions working on these solutions today.

May 27, 2014

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