With the pandemic as catalyst, eCommerce as a share of retail sales jumped from 11.1% to a peak of 16.1% in 2020, per the U.S. Census Bureau. And although in-store shopping returned as the world reopened, eCommerce still represented 14.8% of total retail sales as of Q4 2022.
This shift is contributing to a revolution in how consumers prefer to pay. Although shoppers continue to pull out their debit cards at a rate of 38% for everyday purchases like groceries, this percentage falls to just 23% when shopping online. Digital wallets like Apple Pay, Samsung Pay, and Google Pay account for much of this disparity.
Another indicator of the growth of digital wallets is the fact that two-thirds of consumers said they now prefer mobile payments as they have more built-in security features. In addition, 71% of U.S. consumers surveyed had used a mobile wallet in the prior 12 months, and 56% felt comfortable leaving their wallets at home and using their phone for payments at the point of purchase.
As consumers are looking for greater convenience in payments, digital wallets are clearly on the rise. As a credit union, how can you best capitalize on this opportunity, while supporting your members’ evolving payment needs?
Do Wallets Constitute a Threat, or Opportunity?
As traditional methods of payment like cash, checks and even physical cards decline, and digital payments become more commonplace and accepted by all generations, financial institutions need to offer those digital solutions their members want and need. Otherwise, they risk continuing to lose primary financial relationships and market share.
"Contrary to conventional wisdom, even older generations are adopting digital payment methods,” says Ashley Dobbelmann, Digital Payments Product Owner at Co-op. “More merchants are accepting these forms of payment, and we’re seeing them being used a lot more for in-person transactions. If a credit union is not offering digital wallets, their members will go elsewhere for these solutions."
Banks already recognize this and have taken steps to address it. In January, it was announced that a consortium of mega-banks including Wells Fargo, JPMorgan Chase and Bank of America were working with Early Warning Services—the developer of Zelle®—to create a brand-new digital wallet to compete with the leading players.
But credit unions don’t need to take such a big swing to stay in the digital payments conversation. The key is to offer solutions that allow members to continue using their preferred credit union payment methods within their favorite digital applications, while providing the unique personalization, outstanding service and customized advice that credit unions already do so well.
How Credit Unions Win in Digital Payments
The digital payment landscape is constantly changing, and it now includes digital wallets, P2P and contactless. The key is for credit unions to be in the game, and it can’t be a “pick and choose” proposition. Credit unions must be able to support the preferred payment methods of all their members, or they risk losing them to attrition, one micro segment at a time.
Push to wallet is the fundamental solution that credit unions must have on their roadmap to ensure they don’t lose members to the competition. According to research from Experian, the typical consumer has 3.84 credit cards, plus at least one debit card. Yet most digital wallet users will only keep one or two cards in their app. This creates a Darwinian battle for top-of-digital-wallet status.
Push to wallet allows issuers to automatically “push” a member’s debit or credit card credentials to their preferred wallet apps, instantaneously. This is particularly important when a card is lost, stolen or expired—a key point of disruption. If the cardholder loses access to their preferred form of payment within their wallet app, they will switch to another card—often permanently.
Typically, when a card is reissued due to loss, theft or another reason, the cardholder will need to wait until they receive their new physical card in the mail, a process that could take weeks. With push to wallet, the member regains full access to their preferred payment method immediately, and they don’t need to go through the hassle of manually entering their credentials into their mobile wallet app. This allows the consumer to continue using the payment method they like best, and significantly lowers the issuer’s risk of losing top of wallet status.
A related solution to push to wallet is digital card issuance (DCI), which provides members with access to their debit and credit credentials instantly. DCI empowers the member to begin using their card right away for digital wallet and online (e-commerce) purchases while they wait to receive their physical card. DCI is another critical tool within credit unions’ digital payment toolkit, as the longer it takes for a member to receive their physical card in the mail, the lower the chance they will activate it.
Take a Phased Approach to Owning the Digital Landscape
The expanding universe of digital payments can seem overwhelming. To be their members’ first choice in payments, credit unions must offer a range of digital solutions, including contactless cards, P2P (through Zelle®), as well as push to wallet and digital card issuance. All of these solutions are now table stakes, and credit unions no longer can afford to select from a menu of digital payment options. For example, even if only a small percentage of members use Google Pay, credit unions that don’t offer digital wallet provisioning will lose those members to the competition, risking “death by a thousand cuts.”
But if your credit union is just starting your digital journey, you don’t need to implement all these solutions at once. You just need to have a well-planned strategy for getting there.
“We recommend a phased approach to introducing new digital solutions,” says Michael Ruetten, Vice President, Product Management—Pay Products at Co-op. “It’s best to tackle one major digital project each year, and budget your staff, resources and investments accordingly. This way, you won’t bust your annual technology budget, and your staff and members will stay excited about the latest capabilities on the horizon.”
In the meantime, make sure to analyze your member payment data to identify and capture new opportunities to grow your payment portfolio. Then target dormant cards for activation through low-rate balance transfer promotions, and higher usage through special “spend and get” campaigns.
How Co-op Can Help
Co-op is here to help your credit union along your digital payment journey. We currently offer a full suite of digital solutions, including contactless cards, Zelle® P2P payments, digital card issuance—and coming soon in 2023—push to wallet.
As the popularity of digital wallets continues to grow and more merchants accept this emerging form of payment both online and in-store, it is imperative for credit unions to be in the game. Credit unions must invest in this and other new forms of payment in order to provide a better experience and prevent members from seeking these solutions elsewhere.
