ST. PETERSBURG, Fla.—Mobile wallets. Digital wallets. Top of wallet. Complexity in the payments channel continues to grow. But one person is offering a primer on 10 different issues in payments.
Tom Davis, chief technology officer with CSCU, offered this look at 10 areas within payments during CSCU’s recent solutions conference here.
1. Just What is a Wallet?
Standing alongside a slide full of the logos of all the payments options in the market, such as LoopPay and PayPal and Google Wallet, Davis said he wasn’t going to talk about what these providers are. Instead, his “slant” focused on how credit unions should develop strategies around these solutions.
First, he offered some clarification around some of the terms used.
Tom Davis of CSCU speaking at company's Solutions Conference.
“What is a wallet? A wallet is leather. You carry it in your pants,” he said. “A phone is a mobile wallet. What is a digital wallet? A digital wallet is where your payment credentials are stored in the cloud so you can use it to make payments. But there was something missing, and that was that they couldn’t take to the POS with a brick-and-mortar terminal. Now a mobile wallet can communicate with POS at the merchant, especially the new terminals that are NFC-enabled devices. And the mobile wallet can also talk to apps.”
“We have to enroll in these wallets. We have to do something. These are work. But our cardholders want them. So we have to figure out is it worth it?”
2. Apple Pay
Apple Pay is getting all the attention, and its CEO has called 2015 the Year of Apple Pay. But Davis reminded that right now ApplePay represents just .07% of total consumer spend at this point. “Six percent of people who had everything they needed to make a payment using an iPhone 6 have ever used it,” he said. “So there is a lot of disinterest in this in this space right now. It’s not there yet. It’s still small, still coming along.”
3. MST
A new term Davis shared with his audience of card executives is magnetic secure technology, or MST. “This is LoopPay. They will tell you this is the number-one wallet. I’ve been using it for a while, and I will say that’s a little exaggerated. It doesn’t work with gas pumps, for example. It’s not there yet, but when it works it works very slick. It’s a technology we need to keep an eye on. I think when Samsung Pay does come out, after buying LoopPay, it’s going to really be worth watching. It speaks a lot of languages.”
4. Data
Where data is stored has been a critical differentiator among various payments solutions. Initially the model was credential storage vs. device pay storage, each of which has advantages/disadvantages. Now there is a “hybrid scenario,” which is what tokenization is all about. Card data is on the device, but it’s not really the PAN data, which is stored in the cloud. It also doesn’t require connectivity. “This is the best of both worlds. That’s why everyone is talking about this,” said Davis.
5. Payments Rails
The issue that Davis said “really brings all this home,” is who will be riding which payments rails. “We have all this technology. What are these products going to do with my rail?” he said. “We like credit and signature debit rails. We’ve fought for those for years. What do we have to worry about? Most of the Apple Pay, LoopPay devices are going to ride our rails. But then there are some like CurrentC and PayPal that realize if they ride your rails, they have to get income from somewhere. Apple Pay and Samsung are riding your infrastructure, and they’re getting income by charging for the transaction and by selling devices.”
The revenue option that is left for certain providers is monetization of the data, said Davis.
6. E-Commerce Trends Worth Watching
An interesting example of what’s going on in e-commerce, said Davis, is what’s happening with office supply chain Staples. He said it “blew his mind” when he found out that 30% of Staples’ revenue is coming through Apple Pay, as it struck him as odd that so many shoppers were using Apple Pay in stores. But they are not, which he realized when he was in a Lowe’s and saw a desk reserved to pick up items people had ordered using the Lowe’s app on their phones—where they paid for it, as well.
“That’s when it hit me that people are buying stuff at Staples on a mobile device, and then picking it up at the store,” Davis said. “People are going to complete the payment in their front pocket, not their back pocket. Keep an eye on this. There may be more than one way to win in the battle of the POS. There’s something going on here. E-commerce is now just 6.7% of commerce, but it’s growing at 17% annually. It’s starting to get significant, and mobile makes up more than half of it. Think about it.”
7. Wearables
Davis urged attention to wearables, such as the Apple Watch and Samsung Watch. “One thing to take into consideration with wearables is no one is giving up. Look at the Fit Bit craze. Payment credentials are coming into wearables; deal with it. If Samsung, Apple and Google are offering wearables, do you think they are doing their research?”
But he also cautioned, “Not all wearable are going to be as secure as the Apple Watch. A lot of manufacturers won’t realize how seriously we take security.”
8. P2P Payments
“You certainly need to be talking about this,” said Davis. “You have to do it. Square is doing it. PayPal is doing it. Seventy-two percent of Millennials are OK with doing payments with non-traditional providers. This is table stakes, we have to have it.”
9. Beaconization
The next round of payments is built on the Bluetooth technology known as beacons or “beaconization.” That technology, for instance, knows when a specific shopper is in a retail store and can send them special offers in real time. “Now it’s about figuring out what to do with it. It’s not just the ability to pay, it’s the knowledge of the purchase. The technology is here today, we just haven’t figured it all out.”
10. Data
Every company and industry is realizing the value in data, said Davis.
“Everyone is collecting data. You’re collecting data. Merchants are collecting data. Disrupters are collecting data. There are people in this space who don’t look at revenue like we do; data is their goldmine. We need to take a good, philosophical look at what we can do with the data. What we are collecting, what we could be collecting? How can we take a holistic look at this, a culture of what we’re going to do with this data? People are concerned about privacy, but they aren’t doing anything about it. They only become concerned when they get breached. We know that Samsung, Google—which aren’t that interested in (interchange revenue) really—see the value of the data and are going to monetize it. We need to know what our stance is going to be, and we need to let our members know what we are going to do with it, as well.”