The payments landscape, as we know it is changing at a faster pace than we could have imagined 15 years ago when the biggest impact was the “elimination of checks.” With more consumers owning a cell phone than a toothbrush (gross!) the future of “legacy payments” such as credit cards, debit cards and, yes, those pesky checks is coming into question.
In 2010, the Electronic Payments Association (NACHA), folded a new category of transactions into its WEB code: Mobile transactions. WEB itself was introduced 13 years ago to track the increasing volume of online bill payments originated from consumers’ PC s, but in the past four years, it has also included the ACH payments consumers make as they stand at retail counters holding their mobile phones against a scanner.
These mobile payment transactions clear using the ACH rails and circumvent the card networks of Visa, MasterCard and their card competitors. Their rising numbers and dollar volumes are unmistakably concerning because as they increase, they pose a growing threat to the interchange income of all debit and credit card issuing credit unions.
In other words, each mobile transaction that clears on the ACH rails is a transaction that bypasses the revenue engine that is at the heart of our industry’s ability to offer lower cost lending and transaction accounts to our members.
Who is facilitating these mobile ACH transactions at POS?
The biggest player in mobile POS ACH transactions is PayPal, but MCX, the retailer consortium whose members’ sales top $2 trillion, plans to launch a beta-version of its mobile payment/loyalty/rewards service in late 2014. Within two years, MCX transactions along the ACH rails could displace $400 billion in credit card/debit card/cash transactions.
What is the value to merchants of WEB transactions?
Mobile POS transactions can save a merchant $1.96 for a would-have-been credit card transaction and $0.47 for a would-have-been debit card transaction (for an exempt issuer). These savings, for an industry that estimates its interchange expense at between $30 and $50 billion annually, are profoundly tempting.
Can credit unions fight back?
- Fortunately, these mobile POS transactions that bypass the debit and credit card rails will take several years to fully insert themselves into consumers’ daily purchasing routines. During that time, it is imperative that we, as an industry and as individual payment issuers, craft long-term strategies to ensure our value propositions soundly place our payment products (whether in mobile or leather) top of wallet.
If our members are going to resist the POS ACH tide, we have to offer the competitive rewards and loyalty-driving, total relationship-based solutions that make our own members our strongest advocates against an inevitable retailer marketing onslaught.
Our value must be stronger than their incentives, but we can do it. And we can win.