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GAC breakout: MacAllister offers CUs payments forecast, planning advice
WASHINGTON (2/26/14)--John MacAllister, principal of Dorado Industries, a global payment system consulting firm in Los Angeles,  offered credit unions a forecast on the near future of electronic payments technology and also provided tips for navigating the payments landscape during a Credit Union National Association 2014 Governmental Affairs Conference breakout session.
  • Look for a convergence of e-commerce and brick-and-mortar. As an example, MacAllister noted that PayPal accounts can be used at Home Depot. "That's good because that creates competition and innovation, and I think it accrues a benefit to the consumer and the issuer because there are more ways to use payment instruments" MacAllister said.
  • Look for more mobile clutter. Look for more instruments with names like dongles, sheaths and table stands that issue messages among mobile devices, but have one thing in common "the last message has something to do with payments," MacAllister said.
  • Look for more communications between consumers and merchants. "The minute your member approaches the store, if he or she has a Bluetooth phone, the merchant will be talking to your member," MacAllister said. "If they are talking about using a different card then the one your member has with your credit union, that's not good news for the credit union system."
  • There will be a cyber-currency.  Simply put, there is a need for it, MacAllister said. There's also a lot of money to be invested into developing one, and plenty of smart people to get it done. MacAlllister did not think that cyber-currency would be Bitcoin, however, which he called "poorly conceived and ill executed."
MacAllister also offered attendees tips to prepare for changes in the payments market:
  • Increase member card penetration. "To preserve the value of the mag stripe card ... you need to make sure that card penetration is as high as it could possibly be, as close to 85% or 95% as you can get it, and activiation or use rate is somewhere close to the national average, which is 20 uses per month, including point of sale and ATM transactions."
  • Find a relationship with the most ubiquitous mobile wallet solution for members. "If you don't have an articulation of a mobile strategy with regard to mobile payments, you need to build one pretty quick," MacAllister said.
  •  Investigate the amount of transactions that are being disintermediated by ACH and work to reverse it. About one in four PayPal transactions are made through ACH, MacAllister said. For most credit unions, "every time an ACH transaction replaces a debit transaction you're going to 44 cents in revenue to 15 cents in cost," he noted. He advised credit unions to monitor where their ACH transactions are originating.
  • Agree that merchants have something to offer and seek new relationships. "Interchange is going away," MacAllister said. "The question is, 'What are we going to replace it with?' If that happens, the next time somebody knocks on your door and offers you to authorize and settle a transaction for 15 cents, it's going to look pretty good." Also, big banks are the most likely to be the first to partner with big retailers, leaving credit unions out of the loop, MacAllister said.
Credit unions do have one advantage in the payments landscape, MacAllister said: Their willingness to collaborate. Credit unions can solve many of the above issues surround payments through credit union service organizations, MacAllister said.

"I can't imagine credit unions would approach this without taking a CUSO approach, a collaborative approach, to answer the questions, 'What do we do about a mobile wallet? What do you do about security? What do we do about cyber-currency?'" he said, "It's the only way to go."


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