By Ray Birch
ST. PETERSBURG, Fla.—Credit unions watching for threats to their mobile payments business shouldn’t simply focus on the U.S., but should look overseas as well to some powerful and established mobile payments players, asserts one analyst.
Brian Scott, SVP of sales and solutions consulting at PSCU, is concerned that Alipay could make its way to the U.S. market in a big way by partnering with grocery store giant Kroger. And if that happens, credit union cards, as well as U.S. issuers’ cards, would be at risk for losing payments transactions to banks overseas.
“Alipay and Tenpay are the two dominant mobile payments players in China and they are looking at coming here now,” said Scott. “Alipay is looking at partnering with Kroger, which is the second- or third-largest grocery store chain in the United States.”
Kroger has 2,778 stores in the United States.
‘Out-Amazoned’ Amazon
Alibaba-backed Alipay and Tencent's Tenpay handle about 90% of China's online payments by transaction value, reports indicate.
“If you look closely at Alipay, it is arguably better from a mobile payments perspective than anything we have in the U.S. now,” said Scott. “You partner Alipay with Kroger, a massive grocery store chain, and now all of a sudden Alipay has ‘out-Amazoned’ Amazon.
Scott suggested the payments experience from Alipay in Kroger stores, if that deal were to happen, could likely evolve into something similar to that of cashier-less Amazon Go stores.
“It’s interesting to look at what happens internationally and how that could transition to the U.S.,” said Scott. Pointing to how the U.S. mobile payments market is still struggling to reach expectations set when digital wallets were introduced years ago, Scott added that mobile payments in China are advanced, possibly representing 40 to 50 times the U.S. mobile payments volume.
“You look at how well-developed those mobile payments technologies are in China, and you bring them to the U.S. and you would potentially have hugely disruptive forces,” observed Scott. “It’s speculative, of course. But all of a sudden the U.S. mobile payments market could be more closely aligned with banks in China than financial institutions here.”
Brian Scott
Scott pointed out that many credit union issuers are comfortable with the mobile payments market today, but are not looking at the potential impact of overseas mobile solutions.
“I talk to a lot of financial institutions and they say, ‘my card is already in Amazon, so I feel good about that.’ But their card is not in Alipay.”
Lost Transactions
That could lead to a great deal of lost transactions, said Scott, who acknowledged that the pace at which the financial services market and payments industry is changing demands that credit unions be vigilant and aware of all potential competitors.
“It’s hard to say what is coming anymore as the market is so dynamic,” said Scott. “There is so much value in credit unions every day paying attention to what is happening in payments, and not just in the U.S. Look internationally, at the rest of the world, and see what is happening. Alipay and Tenpay potentially coming to the U.S. is a great example. Will it happen? I don’t know, but it could. So be aware of this, and be aware of the potential impact it could have on your credit union, and how you might position your credit union if it were to happen—to protect your cards.”
Scott emphasized that credit unions continue to be very worried about U.S. fintech competitors.
“Look at China. China banks are essentially government banks. So the government controls the banks in China,” noted Scott. “You would think, then, that the Chinese government would be much more able to regulate what is occurring with payments there. However, many banks in China are losing huge amounts of transactions and interchange due to Alipay and Tenpay. So imagine, in a country like ours where the government does not own the banks, the impact on lost interchange from a new, big competitor here could be huge.”