The card issuers' digital identity crisis
Card issuers are caught between two competing business demands: the need to keep pace with digital payments, and the threat of becoming the brandless plumbing of another company's wallet app.
The reality is banks and credit unions will be stuck in the middle of these forces for some time, and success can be found by conceding some long-held advantages in the interest of reducing friction for the consumer.
This mindset is producing some weird business decisions, such as pretending that checks don't come with a checking account.
"We don't tell members about checks anymore," said Charlotte Norton, senior vice president of central operations at Randolph-Brooks Federal Credit Union. "We're just trying to let that go."
Norton spoke during the Credit Union Summit on the first day of SourceMedia's annual Card Forum, taking place this week in Austin.
Previously, the credit union gave a free box of checks to every customer who opened a new checking account, but it suspected that they were just being thrown in a drawer and forgotten.
So it just stopped mentioning checks. "We found that when we stopped saying anything about the checks, only 20% of those [new members] ever came back and asked for the check order," Norton said.
The challenge, of course, is that the credit union can't ignore the 20% who still use checks, even if most customers never want them. The same scenario is unfolding with plastic cards, although much more slowly, as digital wallets and tokenization gather momentum.
In the Apple Pay, Android Pay and Samsung Pay wallets, there is a certain amount of bank branding preserved, but the bank's name is not on the app and the wallets don't give banks a chance to make their case that they should be "top of wallet" after they're linked to the app.
One school of thought is that banks should compete with the third-party wallets. But it's a fight that provides very little value to consumers and merchants.
"Why does it matter that I know what card I'm using?" said Reetika Grewal, head of payments strategy and solutions at Silicon Valley Bank, during the Most Influential Women in Payments sessions at Card Forum. "I don't have a strong affinity to my brand associated with my credit card" while making a payment at a store, she said. "Issuers really need to think about what their brand means."
In the world of plastic cards, branding matters, and banks are working aggressively to introduce special materials and design flourishes that make their card stand out in a physical wallet. These strategies may still resonate among those consumers who prefer to use plastic cards, but they don't translate well into the digital world.
This issue has already played out in the market with the earliest supporters of clearXchange, the bank-run P-to-P network now owned by Early Warning. The banks recently scrapped their earlier branding work to relaunch the platform as Zelle, a single consumer-facing product that looks largely the same at every bank that supports it.
Ian Macallister, vice president of strategic partnerships at Early Warning, said that inconsistent branding was "the biggest hurdle we had at clearXchange."
It was impossible to expect widespread adoption when one bank called its version SurePay and another called it QuickPay, because consumers would have no idea that these bank-owned brands operated on the same platform, Macallister said. Not only would users have to guess that these systems were compatible, they would also have to locate them within the app, and each bank had its own approach to positioning the P-to-P service.
"You don't want to have the millennial customer — or any customer for that matter — looking for that functionality and not being able to find it," said Brian Ziff-Levine, director of payments and cards at First Tech Federal Credit Union, a customer of Early Warning's Zelle. Macallister and Ziff-Levine spoke during the Credit Union Summit.
Zelle customers are prohibited from making any changes to the Zelle interface other than visual elements such as the font and color scheme, to make Zelle appear to be a seamless part of the bank's own app, Macallister said. If the interface is nearly identical from bank to bank, one Zelle user can walk another through the process of sending money regardless of which bank each person uses.
"Third party competitors out there, they have that consistency," Macallister said. To do otherwise introduces friction that "kills the transaction," he said.
Some banks, such as Bank of America, have already determined that there is no value to coercing consumers into using their own branded wallet app when Apple Pay and the rest work just fine. In the end, the card issuer still gets revenue from each mobile payment, and it would not have that sale if it did not play nice with third parties.
Ultimately, technology could make all payment brands disappear into the background of in-store experiences.
Silicon Valley Bank works with a company called Oak Labs, which has designed a digital shopping experience for apparel stores that takes place entirely within the fitting room. Once a shopper finds an outfit he or she likes, there is no need to visit the cashier; the payment can be handled through an interface projected through the fitting room's mirror.
"Those kinds of experiences are really more where the next generation of innovation is going to be driving... rather than how do I marginally improve the point of sale," Grewal said.