Brian Day, TMG
By Ray Birch
DES MOINES, Iowa—The introduction of Walmart Pay is positive for credit unions—at least for now—say payments analysts who are also cautioning that may not be the situation long term.
The good news is that Walmart has adopted a card-based approach to its wallet, as opposed to riding the ACH rail. The longer-term worry for financial institutions, say experts, is that Walmart’s ingenuity and ongoing desire to cut costs and promote its own brand to its customers cannot be overlooked. Credit unions are being encouraged to begin paying close attention to how they reward their own cardholding members in the digital space to deliver offerings that keep them using the CU’s card over retailers’ growing options.
Meanwhile, when it comes to what was once considered a significant threat to credit unions in the payment space, Merchant Customer Exchange (MCX), experts are unsure of the effect Walmart Pay might have on what was to be a retailer-led effort to counter the likes of Apple Pay and Samsung Pay. But they do say Walmart’s card-based approach signals that MCX’s CurrentC offering may choose that same route.
Long-Term Look
“Walmart Pay is a positive for card issuers,” said Brian Day, director of digital strategy at The Members Group. “But we have to look at this in the short and long term. Short term it is great news in that Walmart will allow any credit and debit card into their wallet, based on the details I have seen so far.”
“It is good news that consumers can load as many cards as they like,” agreed Michelle Thornton, manager of core products for CO-OP Financial Services in Ranch-Cucamonga, Calif., basing her position on early Walmart Pay reports. “We see that as a good thing for credit unions and for consumers.”
Longer term, however, credit unions must be cognizant of the fact Walmart is obsessive about cutting costs, said Day.
“Walmart will surely get creative about what tools they can utilize from a payments perspective to minimize costs associated with their wallet transactions,” said Day. “I think it would be foolish to discount that fact, and Walmart is probably already working on some things for future phases of Walmart Pay.”
Tom Davis, chief technology officer with CSCU in St. Petersburg, Fla., added that in addition to the positive news that all cards being able to play inside Walmart Pay, the Walmart wallet will be restricted to its stores.
“So this is not a big issue for financial institutions once you get outside of Walmart’s world,” said Davis.
CUs Will Benefit
Richard Crone, principal of Crone Consulting LLC in San Carlos, Calif., added that Walmart Pay is a benefit to CUs, especially those with their own CU-branded wallets.
“Walmart has developed its own API (application program interface), and that same interface can be used by credit unions for Walmart to accept their CU-branded wallet,” said Cr
Michelle Thornton, CO-OP FS
one. “There is an overwhelming preference by consumers, as studies continue to show, to use their financial institution’s mobile wallet. Walmart Pay is really good news for credit unions that have had the vision to develop their own branded offering. Now all they have to do is use that same API Walmart is using itself.”
Tom Davis, CSCU
Day said that Walmart’s choice to go with its own solution prior to the launch of CurrentC, as well as its decision not to choose ACH, says a great deal. Walmart Pay uses QR codes for payment, as opposed to NFC, something MCX has endorsed from its start.
Day pointed out that MCX was vocal at its outset that ACH would be the payment process used by MCX merchants, and that a consistent mobile wallet experience would be delivered across all participating retailers. MCX includes many of the largest U.S. retailers, including Best Buy, Home Depot and Target.
Day noted that if MCX launched with a united front, and used ACH instead of the traditional payment system rails, that would have been a serious threat to financial institution payment revenue. But Walmart Pay signals that may not occur.
“Now we have one of the biggest retailers in that MCX bunch moving to a card-based wallet solution,” said Day. “If MCX fails to materialize, that is a good thing for credit unions.”
Sources predicted that more major retailers, such as Target, will launch their own branded wallets, adding that would not necessarily signal the end of MCX. They noted that the emergence of store-branded digital wallets such as Walmart Pay will likely happen due to the expiration this year of the original MCX contracts signed by retailers. Those original contracts have been thought to contain exclusivity agreements, deeming MCX’s solution to be the only digital wallet used in the stores.
Many of the large MCX retailers this year have begun accepting mobile wallets such as Apple Pay.
Richard Crone
MCX Impacted?
Davis sees Walmart Pay being a card-based solution also signaling that the savings from ACH may not be as large as retailers originally projected.
“Obviously, the attempt from MCX was to lower the cost of payments for all of their merchants,” said Davis. “And while we have all realized that the credit/debit model, which allows for chargebacks and fraud costs, may seem expensive on the surface, once you peel it back you start to see that maybe it is a little more economical than first thought.”
Thornton said that it will be interesting to see the repercussions from Walmart Pay on MCX, as well as from other store-branded wallets that will emerge.
“Will it be difficult for MCX to gain traction now or will Chase Pay be enough to keep MCX alive,” Thornton said.
Davis emphasized that Walmart will never tire of trying to lower their costs and improve the store’s own position among digital wallet users. He said this challenges credit unions to carefully address how they position their products and their digital wallets with members, and to be innovative.
“Credit unions need to be on their toes here,” said Davis, addressing loyalty and incentive programs. “You need to incent with a purpose to make sure you drive the behaviors you want from your cardholders.”