Digital wallets are helping to create a faster, more expedited checkout for consumers.
As financial institutions (FIs) and tech companies battle for market share and compete to bring their offerings to market, digital wallets also raise the table stakes around convenience for other payment methods.
“I think there’s obviously a strong market for it,” said Cody Banks, managing vice president of payments and fraud strategy at PSCU, the largest credit union service organization (CUSO) in the United States.
He told PYMNTS that he views anything that can give consumers greater choices as a “win-win for the end payment user.”
PYMNTS’ research in the February 2023 report “Digital Economy Payments: The Ascent of Digital Wallets” found that although credit and debit cards are still the payment methods of choice for most consumer purchases, the availability of alternative options, such as digital wallets and buy now, pay later (BNPL), are becoming increasingly important — particularly for online shoppers. Digital wallets are already cannibalizing the use of debit cards online.
“It’s pretty exciting what [digital wallets] have going on,” Banks said. “The ability to pay and pair transaction data with the payment is pretty unique. There’s a great opportunity here in the sense of sticking to the secret formula — which is not so secret for credit unions — of matching the [payment] experience with personalization.”
PYMNTS research shows that the shift toward transacting more online and less in-store is continuing, with eCommerce significantly driving retail revenues.
Still, Banks said he doesn’t see investing in a digital wallet option as a mission-critical top priority for credit unions, at least right now.
“Building a payment method that will compete with Apple, PayPal … that’s a pretty tall order for a lot of reasons,” he said. “And on top of that, you’ve got to get the merchants involved — and that experience has to be not only the same as what Apple and PayPal have, it’s got to be better for folks to want to use it and then continue to use it … playing in that space is going to be very tricky.”
That doesn’t mean, though, that credit unions must sit back as alternative payment methods and other products get swept up in an ongoing digital transformation. Rather, as Banks said, the priority should be to buttress third-party digital wallets with the key personalization benefits credit unions are uniquely positioned to offer.
“Credit unions definitely should focus on their digital imprint and experiences by investing in data-driven campaigns to personalize the payments experience, which is their niche,” he said. “There are far more exciting things for credit unions to do [beyond digital wallets] related to enhancing the digital payment occasion, whether that’s chat bots, AI, or other ways of knowing your member and looking out for their bottom line in a financially healthy way. Now more than ever, [credit unions should be] taking that data and making more informed decisions, providing that personalized experience to members.”
Read also: Banks out to Challenge Big Tech in Brewing Digital Wallet War
He added that the relevant approach for credit unions today is really about honing in on the member payment journey and identifying which elements can be coupled with data-informed benefits.
“How can we weave together the story of financial wellness for [credit union] members using data?” Banks said. “It’s those experiences, knowing the member in a way where you can provide value for wherever they are in their life’s journey. They’ve lost a job, they’re saving for a car, paying off college loans, they’re traveling, they’re retired — there are products for all of these that we can provide. I think that’s the most important piece.”
Digital wallets collectively represent a much higher share of online spending than in-store spending, and each transaction comes with a rich, if typically anonymized, behavioral data set.
“It’s important to consider those other channels,” Banks said. “There’s no need to boil the ocean here, and I often see credit unions looking at things like, ‘OK, here’s the big picture of what I need to do and how can I do it all right the first time.’ And our advice is constantly to take things chunk by chunk, ask what you can control, what are the pieces you can get on the phone with someone right now, the vendors, and journey map that out … chipping away at big goals and not just setting them is the important piece.”
He added that he sees digital wallets as eventually going from novelty to normality to necessity and that credit unions should look at their product pipeline and judge how they can add value to this still-emerging new normal.
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