HONOLULU–How to deal with current challenges in payments, as well as where credit union strategies should be focused were among several critical issues discussed during a high-level panel here.
Speaking to NAFCU’s 50th annual meeting, Ben Colvin, SVP-North America Enterprise Security Solutions with MasterCard, and Neil Mumm, VP-corporate Strategy with Visa, responded to a host of questions posed by moderator Rodney Showmar, president/CEO of Arkansas FCU. Issues ranged from the future of physical cards to where risk will come from next to how to capture card on file opportunities.
Here’s what was discussed:
Q: What is the future for physical cards?
Colvin: It is an interesting question. When cards came to be we were told cards and cash would disappear, and they are still here. So, cards will be here for the next few years. Question is what is the purpose of a card: it’s about allowing consumers access to their money. With introduction of EMV, I think we’re actually going to see cards becoming used even more often. And we’re beginning to see that now in the U.S. That said, members are becoming almost indifferent to how they pay.
Mumm: I agree that we still have a long way to go before cards are obsolete. A physical card at POS is still the most common way to buy something. For that to no longer be the case, two big things have to happen: a massive infrastructure change by merchants, and that’s not going to happen overnight, and two, consumers need to pass a tipping point, and that’s a number of years away. That does give you some things to think about from a card migration standpoint. There is also some forward thinking to be done, such as with contactless. Look at other countries where there was EMV migration and you will see merchants upgrading to contactless. Eighty percent of POS in Australia is done with contactless or tap and pay, and that’s almost entirely done on card. If that happens, I think you’ll see the card experience be one that consumers prefer.
Q: In a nutshell, what should credit unions map out for their two-year card strategy?
Mumm: There should be two pillars: One around service and another around security. On the service front, credit unions are known for having the best service and for serving members, but consumer preferences for how they want to be serviced are changing. They are shifting to mobile banking. Empowering your members is a critical step in that road map. I saw recently that more than 60% of consumers say online and mobile banking functionality is what will keep them with the institution they are using. Extending that into payments, an area where we’ve seen a significant uptick is the area of alerts, which consumers enjoy having. So, it’s really critical to make sure you are giving members the option to manage their accounts in the way they want to.
Colvin: I think two key areas. Card strategy is not just the physical plastic; it’s also how do they access their account? If you think about card strategy in that regard it’s two things: first, making sure they feel safe and confident to use that, especially as we make great strides in the card-present arena, but see an increase of CNP in the digital space. And it’s really about having the different layers of support around that, so when you think about what you are going to do before the card is used, what you will do while the transaction is occurring, and what will you do afterward. How do you detect mass attacks and fraud?
Q: What do you consider the next wave of risk with payments?
Colvin: It’s really in account takeovers and fraudulent account setups. That is one area I can tell you where Mastercard is spending a lot of time. It’s an area to give some thought, too. The other one is with the ability with data compromises to get access to (large) amounts of data. Fifty percent of attacks in 2016 included compromises on Social Security numbers. So how do you have confidence in the accounts you are opening?
What is critical for credit unions is that as the industry continues to find ways to expand the ecosystem, fraud always moves to the weakest link. So as EMV takes hold in the U.S., fraud will begin to really move to card not present in ways that will increase over what we are already seeing. The bigger banks are spending time and energy on this. Make sure you as credit unions don’t become the weakest link in ecosystem.
Mumm: There is actually a very separate type of risk, too. With all of the new entrants in the space, there is a risk of customer/consumer disintermediation that you need to watch for. Plenty of entrants doing things for your members that you do, and it may not be with the same service, but it could reduce levels of engagement.
Colvin: There has been an effort in the trade press to ask if EMV is the driver of CNP fraud? Our view on that is not yet, but it can be. What I mean is there are so many other contributors that to say EMV is the driver of CNP fraud is really an over-simplification. Fraudsters also have more tools now, such as artificial intelligence and machine learning.
Q: What is the reddest of the red flags to watch?
From left, Rodney Showmar, Ben Colvin, and Neil Mumm.
Colvin: To me it’s account takeover and card not present fraud. Those are the next front in fraud and impacts to credit unions.
Mumm: The other flag I would say is the threat to some of the new entrants in the space. Those threats aren’t as immediate but are longer term. But these new entrants are designed in ways that consumers gravitate toward. So, making sure members are excited about what you do is paramount.
Q: What about Millennials and mobile?
Colvin: I have a lot of interest in this topic. Millennials are not a homogeneous group. But there are two key groups in Millennials, the 18-24 range, and the 24-34 range. What’s really important about that is the younger set tends to be more pay-now types of consumers, such as with debit. But for the older Millennials who are beginning to get established in careers and make more money are beginning to see the benefit of obtaining credit, including the benefits of getting rewards.
The other thing in the criticality of digital strategies that is key for credit unions is credit unions have a real serious opportunity to attract Millennials because of their mindset. They are very socially responsible. There is already a natural linkage to attract that.
You need to also think about what you can do to appeal to that emerging Gen Z. These groups are a bit indifferent and more likely to look at non-traditional financial institutions.
Q: How can CUs capture more card-on-file opportunities?
Mumm: This is important, as it speaks to the top-of-wallet issue, which can mean multiple things. Once a card is on top of wallet, it can be very hard to get a consumer to move it. You want it to be in as many card-on-file scenarios as possible, including where they have recurring bill payments. You want to be reminding your members to put those cards on top of wallet, and give them incentives for doing so. There are tools you can use to ensure you stay on top of wallet, such as account-updater features (i.e., changing expiration date). This has to be very member-centric. Some really value rewards, others the APR, so you have to determine what’s most important to them to ensure you are top-of-file.
Colvin: What I would add is there are three areas you can look at as part of your card-on-file strategy: recurring payments, wallets, and making sure your members know about storing your card on file with the on-demand services, such as Uber and delivery services. The key to that is education and giving them a reason to do it. It may mean reinforcing there is zero liability. And it doesn’t matter if you are a credit union or bank, everyone is competing to be top of wallet. So, think about the benefits you might offer them to make your card top of wallet. We just introduced a bundle of services for Mastercard issuers that includes insurance for services such as ride sharing (if something is left behind in a car), mobile phone insurance, and a wifi benefit. It encourages the cardholder to make your card top of wallet.
Q: What is the future for Durbin?
Mumm: Visa doesn’t believe the policies enacted as part of Durbin were appropriate or the way to drive innovation in the payments landscape. We think it’s had some unfortunate consequences in addition to the cost controls. That said, we don’t see it going away anytime soon, and we’ll have to continue to promote the message of unintended consequences and work around it as best we can.
Colvin: The savings have been a windfall for merchants; it hasn’t been passed back to consumers. Mastercard continues to join with organizations like NAFCU to continue to lobby to get the Durbin repeal reintroduced. In the meantime, we have to continue to manage within that strategy.