In the Face of the National ‘Pays,’ Some Small Institutions Hedge Their Bets

Few observers are surprised big banks like Capital One Financial Corp., JPMorgan Chase & Co., and Wells Fargo & Co. are getting into the mobile-wallet market, but what about smaller financial institutions like credit unions and community banks? While some might figure the small players will fall into the arms of the major third-party providers like Apple Pay, Tim Ferrio is hedging his bets.

“We don’t have a lot of say when it comes to whose card is top of wallet in these national mobile-payment systems,” notes Ferrio, e-services supervisor at Saginaw, Mich.-based Team One Credit Union, which supports Apple Pay but isn’t exclusively committed to the idea of third-party wallets. Instead, Team One has also introduced a mobile wallet under its own brand and with a twist: It enables funds transfers to merchants rather than credit or debit card transactions.

Team One is the first financial institution in the country to field mobile-payments technology created by MShift Inc., a 15-year-old company whose mobile-banking app has been adopted by about 100 credit unions and community banks, including Team One. Now Newark, Calif.-based MShift is marketing a wallet that can be white-labeled by client institutions. By eschewing cards, the company says clients can end up earning more than they would from card transactions and can offer a product with more appeal to merchants, since transaction costs are dramatically lower.

Since April, Team One has signed up about 30 merchants for the AnyWhereMobile wallet, which levies a fee of 15 cents per transaction. The latest is GC Express, a Caro, Mich., gas station, which has integrated both in-store and pump transactions through a store controller from VeriFone Systems Inc., a template both MShift and Team One hope to replicate with other petroleum outlets, as it simplifies deployment of the wallet and allows customers to activate the pump from their phones as they sit in their cars.

“Each installation has brought about its own [integration] challenges,” says Ferrio. “We were inventing the wheel each time.”

Merchants signed so far include a mix of eateries and coffee shops, a flower shop, dress shops, and an ATV dealership. The wallet triggers transactions via barcodes, allowing it to work on both Android and Apple devices.

Compared to card-based wallets, merchants save on transaction fees, the lowest of which, on debit cards issued by major banks, are capped at around 23 cents, points out Jacqueline Snell, vice president of strategic initiatives at MShift. The credit union sequesters funds for each sale, ultimately pooling transactions for back-end settlement via the automated clearing house network. In cases where the customer and the merchant are both Team One clients, settlement is simply an internal transfer.

Out of the 15 cents, about 10 cents goes to Team One and a nickel goes back to MShift, according to Snell. Ferrio figures AnyWhereMobile sizes up favorably versus card transactions when card-issuing costs and fraud losses are fully accounted for.

Now MShift is set to widen its marketing for the AnyWhereMobile wallet. “Our first goal was to get Team One deployed and get the kinks worked out,” says Snell. “We’re ready to replicate.” In the planning stage is a transaction that would tap a line of credit instead of debiting a bank account. The fee to merchants for the credit transaction, Snell says, would be “at least half” their average cost of credit card acceptance.

Meanwhile, both Snell and Ferrio are encouraged by the response so far. Neither will disclose numbers, but “transactions are growing,” says Snell. “We’ve seen it snowballing with Team One without a lot of promotion.” Ferrio in particular likes the branded wallet’s potential to “keep the financial institution in the transaction space,” a position he fears could be eroded by third-party wallets offered by technology companies.

Still, an executive with one of those wallets has a word of caution for financial institutions looking at both proprietary and third-party products. “There’s only one universal wallet that a consumer wants and that contains all of their credentials,” says Will Graylin, global co-general manager for Samsung Electronics Co. Ltd.’s Samsung Pay mobile-payments service. “That’s what we’re driving at.”