Offering Contactless Drives Growth and Profitability for Credit Unions

September 23, 2022

Card-based payments have been evolving for as long as they’ve been around.  

This past decade alone has seen a groundswell of new payment methods and form factors, from digital wallets like Apple Pay®, Google Pay™ and Samsung Pay™, to P2P apps like Zelle® and the growing acceptance of contactless cards and wearables.  

While this evolution has been happening for some time, it took a worldwide pandemic to speed up the widespread adoption of digital and contactless payments.  

COVID Changed Everything 

The onset of COVID-19 has accelerated the decline in cash use at the point of sale, and in 2021 mobile wallets’ share of global POS transaction value exceeded that of cash for the first time. Meanwhile, 67% of American consumers report they now regularly make contactless payments with their credit or debit card, and 37% make contactless payments with their smartphone or wearable device

The growing popularity of contactless has been aided by increasing merchant acceptance. According to Mastercard, as of July 2022, 43% of U.S. merchants have contactless-enabled POS terminals, with 38% growth in active locations per month year over year1. 

The biggest roadblock to widespread adoption in the U.S. may be with issuers. According to Mastercard, as of the fourth quarter of 2021, only 25% of cards in North America were contactless enabled2. But this may finally be changing as contactless chip economics become more favorable for issuers. 

“The market is changing,” says Michael Ruetten, VP of Product Management at Co-op. “Magnetic stripes are going away, and by 2029 no new Mastercard debit or credit cards will come with a magnetic stripe. Contactless is the next evolution, and contactless chips are easier to get than standard EMV chips, due to current supply chain issues.”

One challenge for credit unions is that although consumers are eagerly embracing these newer forms of payments, they often don’t look to their credit unions as providers of first resort.

According to the Co-op CU Growth Outlook, 66% of consumers use some form of digital payments. But only 16% of members do this directly with their credit union. This is a major reason why cooperatives lost market share to both traditional banks and fintechs in 2021, and market share continues to erode in 2022.

Contactless cards and digital wallets are foundational payment channels that credit unions need to support continued growth and to compete in the payments space. If a credit union isn’t offering these payment types, members will move on quickly to another card.

Offering Contactless Drives Growth and Profitability

Offering contactless cards presents numerous benefits for credit unions. For one, it accelerates the trend toward cash displacement, which will help reduce cash handling and branch overhead expense over time. Secondly, issuers receive higher rates of interchange per transaction as compared with swipe or EMV. And per research from CSI, consumers use their contactless cards on average up to four times more each month.

Both contactless and digital wallets represent the future of payments. But contactless cards are the future that’s right in front of our eyes, and can serve as a bridge for members reluctant to embrace a fully digital lifestyle. For members used to paying with a card at the checkout line, it’s not too big a stretch to pull out a contactless-enabled card and wave it at the terminal, whereas the steps of opening up their smartphone, pulling up their wallet app, and waving it may be too unfamiliar for some.

Recent research from PYMNTS bears this out. Debit and credit cards still capture the majority of in-store payment transaction activity. And consumers still use cash 19% of the time. Mobile wallets, in contrast, accounted for less than 6% of in-store payments in the second quarter—a figure that is below wallets’ pre-pandemic penetration in 2019.

Contactless cards, however, are rapidly gaining transaction share, posting 14% of transactional activity this year, almost twice as in 2021.

A Contactless and Digital Payments Strategy for Credit Unions

Consumers value touch-free payments—whether it’s mobile wallets or contactless cards—for the same reasons: speed and convenience. If you haven’t started expanding your suite of payment products to include these coveted options, the time has come to add them to your payment strategy roadmap.

“You need to have a plan for your plastics every year,” Ruetten advises. “Step one: go contactless. Step 2: offer provisioning to the most popular digital wallet apps, including Apple Pay, Google Pay and Samsung Pay. Step 3: always keep an eye on emerging trends in payments.”

Here are some tips from Co-op’s experts on how to get moving:

  • Start with contactless:
    “Contactless cards are a great first introduction to members looking for a touchless experience,” says Ruetten. “If you had to prioritize, it’s the best place to start. All the research is showing that contactless cards are being used more than the most popular digital wallets, even Apple Pay.”
  • Next, support digital wallet provisioning:
    After you implement contactless cards for both credit and debit, the next logical step is to offer a push to wallet solution. Focus on the most popular wallet apps currently on the market, including Apple Pay®, Google Pay™ and Samsung Pay™, but also make sure to monitor payment behaviors to make sure you are addressing the unique needs of your membership base. For example, a portion of your members may prefer to use the Fitbit Pay™ and Garmin Pay™ apps included on their fitness devices.
  • Keep an eye on the latest trends:
    “Credit unions should set aside money for new payment types as part of their annual budgeting process, because we don't know what’s coming down the pipe,” Ruetten says. “Two years ago, Amazon One wasn't even on the market. It is now. By 2024, it may be the most popular form of payment among consumers.”

Co-op currently offers solutions to help your credit union implement a comprehensive and well-rounded suite of payment products for your members. This includes contactless cards, digital card issuance, and coming soon, push to wallet, which will enable your members to provision your debit and credit cards to their preferred mobile wallets, including Apple Pay, Google Pay and Samsung Pay—instantly! To learn more, visit our digital wallets page.

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