Credit unions must adjust soon to the impact of mobile payments, which can disrupt their revenue from traditional payment systems like credit and debit cards, according to The Members Group.

Innovations in the mobile payment industry from companies like Square, Dwolla, PayPal, Google and Isis are bypassing consumers' traditional reliance on plastic cards and shifting users to systems that rely on smartphones and the cloud, said Brian Day, Dwolla Product Leader for The Members Group, in a webinar last week.

The Members Group, which provides consulting on payments technology, is an investor in Dwolla and distributes Dwolla's FiSync payment service (see story).

If credit unions do not reach out to mobile payment providers, they risk losing branding and interchange revenue, Day said. They also risk missing out on a younger demographic, he said.

"We have a choice to embrace the future or have it dictated to us by the market," Day said. "If consumers are not getting a product or service they will go elsewhere. If mobile payments aren't addressed at the credit union level, consumers may go elsewhere."

Square and PayPal use cloud-based systems to allow transactions in stores without a network-branded card, Day said. Their systems minimize one of the key differentiators of credit unions — the relationship between a cardholder and the financial institution, he said.

Other mobile payment systems give financial institutions a way to stay connected with their customers.

Google allows issuers to link their cards directly to the mobile wallet, and Citigroup already does this (see story). Isis, the mobile payment system backed by wireless carriers, allows issuers to build branded widgets within the Isis app. Isis works with JPMorgan Chase, Capital One, American Express and Barclays (see story).

Dwolla allows financial institutions to show their brands, and Veridian Credit Union of Waterloo, Iowa has worked with the Des Moines-based payments company since the start of this year.

Credit unions can use mobile and alternative payment systems to recruit the younger consumer who is more likely to use a smartphone for payments, Day said. This demographic is used to getting information on demand, using smartphones as multi-purpose tools and receiving targeted offers from retailers and financial institutions.

"They may see mobile banking as more important than online banking," Day said.

With debit card interchange fees already regulated in the U.S. and similar regulation possible for credit card interchange fees, credit unions have to attract new revenue to compensate. For example, credit unions can use members' purchase data to create targeted offers, Day said.

"When you look at your bottom line today, how much is being generated through debit and credit interchange?" Day asked. "What would happen if that revenue was cut in half or worse in the next five years? What can be done now so if things do progress financial institutions are protecting that revenue stream?"

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