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Mobile Wallets
Gamble, Richard H. Credit Union Management 35.2 (Feb 2012): 42-44.

The huge popularity of mobile communication devices and their growing sophistication probably
make mobile wallets (cell phones used to pay for transactions) inevitable. And that confronts CU
executives with a strategic dilemma. It's time to get ready. It's time to get set. That much is clear. But
whether it's time to go or time to wait is a choice that splits the experts.
$2.9 billion OnPoint Community Credit Union in Portland, Ore., has decided it's time to go. It has
become one of the first CUs in the country to offer a first-generation mobile wallet- one that lets
users make online purchases with their smartphones. It's real, and it's working. Here's how: You take
out your smartphone and go to the Apple or Android store and download an app for mobile banking
that contains OnPoint Community CU's mobile wallet application. You just download the app, register
and you're good to go, explains Iim Armstrong, SVP/technology and human resources and a CUES
member.
Click on the mobile wallet tab and you can see merchandise eligible for purchase. "Suppose I want
to send my nephew in Seattle a $25 gift card for Nike merchandise," Armstrong explains. "I indicate
what I want to buy and fill in my nephew's name, his email address and, if I have it, his cell phone
number. The system confirms that I have funds in my OnPoint checking account and then authorizes
the purchase. My account is debited immediately and my nephew gets an email or text message that
he has $25 of credit for Nike purchases."
The nephew can go to a Nike store and, depending on the merchant's technology, present a print-out
of the "card" or enter the number manually in the POS terminal.
Behind the scenes, the buyer's smartphone app connects to a server at Tyfone (www. tyfone.cotn),
OnPoint Community CU's mobile banking/mobile wallet vendor, also based in Portland, and that
server connects to a gift card consolidator partner. The consolidator issues the digital gift card.
Tyfone connects to the CU's core banking system to debit the buyer's account and then passes the
funds on to merchants through the consolidator.

It sounds slick, and it is- in a limited way. The original users making live transactions were a handful
of OnPoint Community CU employees who initially kicked the tires to make sure everything was
working. The mobile wallet went live to all members Nov. 22. For now, a user can only choose from
about 50 popular retail chain gift cards.
"This is the first release phase," Armstrong says. "We are excited to launch with stored-value gift
cards."
The Case for Waiting
OnPoint Community CU's Northwest neighbor, Seattle-based BECU, is holding back on making any
mobile wallet move. Big ($9.6 billion) and technologically advanced, BECU has no tellers in 40 of its
42 branches and a robust mobile banking program. It also has close ties to some of the biggest and
most sophisticated players that are alert to developments in the mobile payments space. And
BECU's managers offer an unequivocal message about offering mobile wallets: Wait.
"It's way too soon to consider jumping on any one bandwagon," says Ken Myhra, senior virtual
banking manager.
"We're regularly having conversations with partners who figure to be big players in this space, and
they all agree that it's still unclear what the best solution will be," says Tom Tyson, BECU's mobile
banking channel manager. "The big payment processors are still waiting for clarity. We were sharing
roadmaps with a very sophisticated partner recently, and they agreed with us that
mobile wallets should be in our plans for 2014 and beyond."
The big unknown is not so much mobile payments technology as merchant acceptance, says Shirley
Taylor, BECU's virtual banking payments channel manager. "What's holding up adoption is the
merchants," she says. "We could pick a technology today and shove it out the door, but without
widespread merchant acceptance, there's not much point."
Myhra cites this article as describing the CU's perspective well: http://btt.ly/zkztbZ.
In the meantime, is there a danger that players could develop mobile wallets that shut out credit
unions? It depends on who you ask.
BECU's Myhra says it's already happening. "We're definitely being disintermediated, and there is
revenue at stake. Starbucks has a wonderful mobile payment application that is a good example. If
one of our members has a Starbucks card reloaded automatically through a mobile app for $50

every two or three weeks, that's $50 each time it's reloaded that we are no longer receiving
interchange income on, as opposed to having that $50 spent at the point of sale by swiping a debit
or credit card."
In contrast, Chris Cox believes CUs will have the opportunity to play in a variety of third-party
mobile wallet solutions as they evolve. VP/mobile commerce solutions at First Data Corp.
(www.firstdata. com), Atlanta, which is closely involved in the Google Walletproject, Cox says the
goal with any mobile wallet solution will be consumer and merchant acceptance. So providers, he
says, will have to accommodate whatever cards a consumer carries in his or her
physical wallet today, including CU-issued credit and debit cards.
Physical cards have a mag stripe and digital cards don't, which raises questions about what happens
when a mobile wallet contained in a smartphone is presented at the point of sale of a physical
merchant. The answer, Armstrong suggests, will be near-field communication chips, which use radio
frequency wireless communication to a POS reader if the phone has the chip and if the merchant
has the receiver. Tap and go' is the end game, but it will take several steps before most merchants
have the reading pads available," he says. "It doesn't really matter to us whether the add-on chip is
detachable (part of a plastic card) or embedded on an add-on chip in the hardware of a smart
phone."
Google is flying high now and its mobile wallet initiative (www.google.com/wallet) is attracting
attention, but Armstrong has doubts Google will dominate this market.
One reason may be a recent Viaforensics report (at http://bit.ly/v6kk7d) that shows some concern
about security in the Google offering. The problem, the report says, is that the app stores too much
unencrypted data bad guys could use in a social engineering attack against the user.
Still, the security risk around a fully loaded e-wallet is less than the risk of losing a
physical wallet loaded with the same cards, points out payments consultant Les Riedl, president of
Speer & Associates (www.speemndassodates.com}, Atlanta. "Ittakes apassword to get into an ewallet, and the big networks like Visa and MasterCard will offer the same fraud protection they
currently offer on physical cards."
The Risk of Waiting
So as the technology comes to the fore and continues to be evaluated, when should a credit union
jump? CUES member Bob Van Abel, VP/chief information officer at $900 million CoVantage Credit

Union in Antigo, Wis., sees risk in moving too soon. But CoVantage CU has decided to move
anyway.
"If you don't move soon, you won't have a vote in how that service evolves," he notes. "You'll be the
consumer of someone else's solution instead of a developer. We want to have a voice and help build
a channel that supports credit unions."
The big players- Google, MasterCard, Visa- are all jockeying to grab as much of the mobile channel
as they can in proprietary ways that won't necessarily benefit credit unions, Van Abel says. "They're
circling each other like sumo wrestlers. That gives us time to work on alternatives that would be
better for credit unions. Tyfone has a more open model that lets credit unions get in on the ground
floor."
CoVantage CU is shooting for a mobile wallet introduction in the third or fourth quarter of 2012.
CoVantage CU doesn't charge members for Internet banking and doesn't plan to charge them for
mobile banking or e-wallet services. The driver is good member service, and the side benefit is
moving transactions to a lowercost delivery platform, he explains. Mobile banking is the least
expensive delivery channel, he notes.
"We think members want financial services, including mobile wallets, when and where they need
them," Van Abel says. "With Internet banking, you're tied to a PC. Mobile goes anywhere." That's
particularly important in rural northern Wisconsin, where broadband connections are iffy, but mobile
phones nearly always work, he adds.
Standing behind his OnPoint Community CU and CoVantage CU customers, Tyfone CEO/Founder
Siva Narendra is all for moving now. Waiting, he thinks, means letting middlemen claim a large stake
in the market and then resell their product to small and mid-sized CUs and banks. It's better to get
there first, avoid the middleman and claim a richer revenue split, he says.
"Google is working with Gtibank, not a $1 billion credit union or bank," he points out. "Internet
banking evolved without a middle man. Mobile wallets can do that too. Why wait for someone else to
develop it when you can have it now and have it on your terms?" Of course, he has an entry-level
mobile wallet application that is ready to go and is actively selling it to banks and CUs.
Tyfone chose OnPoint Community CU for its first mobile wallet test because of its size. "A mid-sized
institution can move faster than a large one," Narendra says. "They don't have all the silo issues."
And he picked a CU instead of a bank because "they are generally healthier." Both OnPoint
Community CU and Tyfone being in Portland was an additional but minor advantage.

When you move on mobile wallets may influence the revenue split you get. "Mobile banking is a
hard-dollar expense with a soft value," says Don Bloodworth, Tyfone's CFO. "Mobile wallet brings in
hard-dollar revenue from day one." A CU can expect to average as much as 3 percent per
transaction, he claims.
"The economics are interesting," Armstrong agrees. If a member buys a $10 electronic gift certificate
to Sears through OnPoint Community CU's mobile banking offering, Sears might pay (the CU, Tyfone
and the gift card processor) the average reseller gift card processing fee of 9 percent for selling it.
Armstrong says the CU's portion ofthat makes having members use the mobile wallet more
financially attractive than having the member buy the certificate with debit. Plus, "this is just the start
of the kinds of commerce coming out of mobile banking."
Don't overlook the immediate opportunity provided by the unpopularity of fee-hungry banks, advises
Riedl.
"Credit unions are picking up members because people are disenchanted with the big banks," Riedl
says. "Normally, big banks take the lead in introducing new payments technology. Credit unions have
traditionally been conservative followers. But the technology around using smartphones to make
payments is evolving quickly, and it might be time for credit unions, especially those that want to
attract the younger generation, to become fast followers. It will make you more attractive to young
people at a time when they are ready to leave banks if they can still get the services they expect, and
they do love to use their Androids, iPhones and BlackBerries."
Moving in Steps
The choices are not limited to leaping or sitting. Getting to mobile wallets should be a series of steps,
not a dive, says Kelly Rodriquez, director of digital channel strategy at Brookfield, Wis.-based Fiserv
(www.fiserv .com), a CUES Supplier member.
"Mobile banking is readily available today from providers that are credit union friendly, and nine out of
10 large credit unions offer it," she notes. "The next step is to introduce mobile bill-pay, which many
credit unions have done. Then personto-person mobile payments with services like ZashPay.
Mobile wallets would be the logical next step," she says.
The initial differentiator will be simply offering a mobile wallet, Riedl says, but over time, the
differentiators will become rewards. Competing brands will negotiate with merchants to offer

discounts and reward points. A consumer may carry two or three different mobile wallets and use the
one that offers him or her the greatest discount or reward, he suggests.
While the personal communication devices used as alternatives to wallets may be new, the
infrastructure used to settle transactions will be the same credit card, debit card and direct debit
networks that are widely used today. The idea, Riedl notes, is to turn the plastic cards people carry in
their wallets into digital payment devices, not replace them with something entirely different. So CU
managers should talk with the vendors that bring them those services to see what they are planning
in the way of e-wallets. They should also read trade literature, attend conferences and talk to CUSOs
and CU trade groups about e-wallet brands they may be planning.
"It's important now to scope out where your e-wallet product might come from and what and when
those sources are planning to offer something. Stay informed so that you are ready to move quickly
when you think the time is right," he advises.
Sidebar
"Stay informed so you are ready to move quickly when the time is right."
Les Riedl
Sidebar
Resources
Also read "Best Practices: E-Wallets" at cumanagemeni.Org//2//besipraci/ces, "No Cash for Coffee?"
at a/management. org/////nocasnforcoffeeand "Marvelous Mobile" at cumanagemeni.org/09//
marve/ousmobile.
You may also be interested in CU ES School of Prod uct and Channel Management, slated for July
18-19 in Seattle. Learn more and register at cues.org/SOPCM.
And also check out CUES School of Growth and Profitability, slated for May 1-3 in San Diego, at
cues.org/sgp.
AuthorAffiliation
Richard H. Gamble is a freelance writer based in Colorado.