For Many Credit Unions, Homemade Mobile Wallets Don't Make Sense

Most credit unions lack the resource heft of the larger banks that are pursuing their own mobile payment projects, but they aren't left empty-handed.

PSCU, a St. Petersburg, Fla.-based credit union service organization (CUSO), is getting its members on board with Apple Pay, Android Pay and Samsung Pay. The CUSO model relies on sharing resources to build scale and defray costs—in PSCU's case there are 800 credit unions representing 18.5 million credit, debit, prepaid, online bill pay and mobile accounts.

With mobile wallets, "the cost is about the tokenization and the security involved in building their own wallet, as well as building the user experience. There is a lot of building from the ground up for that," said Cindy McGinness, manager of digital channels for PSCU.

For now the CUSO is not building its own mobile contactless app. CEFCU, a Peoria, Il-based credit union and the Richmond-based Virginia Credit Union in last November became the first credit union in PSCU's network to adopt Samsung Pay. PSCU did not provide individual credit union adoption stats for Apple Pay or Android Pay by deadline.

It is important for PSCU to support multiple options from among the existing third-party wallets available, McGinness said. "Across the entire mobile payment business opportunity, there is not a single technology that would meet the needs of 100% of credit unions."

Not all credit unions are relying entirely on third parties for mobile contactless payments. CU Wallet, for example, has positioned itself as a competitor to Apple Pay by targeting merchants it predicts the larger mobile wallet plays will overlook.

While there are benefits for financial institutions in building their own mobile wallets, McGinness said the expense of simply signing on with Apple Pay and the other major wallets is less than building an internal system and provides consumers enough flexibility to maintain service levels.

The strategy can also help the member credit unions stay relevant with their consumer bases given the rise of mobile banking and payment options at mega-banks such as JPMorgan Chase.

"It's actually a fairly low cost way to stay competitive with the larger banks, lowering the risk of attrition by [consumers] who want to use a mobile payment solution," said Thad Peterson,  a senior analyst at Aite Group. "It also indirectly reinforces the PSCU brand since the wallets are clearly positioned as containers for PSCU payment instruments, with the wallet brand secondary."

And given the diversity of phone types consumers use, it's important to reduce the burden of providing services on all of them.

"Across the credit union membership, the [consumers] have various mobile devices with their operating systems," McGinness said. "You have to enable the card programs for Apple, Android or Samsung, or any other system that comes up on the future."

Given the hunger the 'Pays' have for issuers, the ventures will work their way down to smaller institutions by leveraging broad suppliers such as PSCU, said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.

"Small institutions want to show their customers that they are innovative but traditionally have been at the back of the line for all of the 'Pays,'" Sloane said. "I should point out that given Samsung's U.S. market share and the fact that Samsung Pay can be accepted at many more locations than NFC, I am surprised that more financial institutions aren't partnering with Samsung."