Pub. 5 2016 Issue 2

The CommunityBanker 16 BANK BYTES F rom Apple Pay to Walmart Pay, the financial industry has been inundated with alternative payment options. While some are more popular than others, digital payment offerings present both growth opportunities and new challenges for community banks. And ready or not, it’s time to take notice. Ac- cording to an eMarketer forecast report on mobile proximity—or digital—payments, while 2015 closed with about $9 billion in digital payment transactions, that number is expected to rise to $27.05 billion in 2016—and $210.45 billion by 2019. Although there are a few exceptions, the major mobile payments players can be broken into two distinct factions—one that will propel financial institutions forward, and one that stands to take a chunk out of your inter- change income. Mobile Wallets from the Card Space The first group comprises the mobile wallets that preserve the existing interchange model by utilizing the credit card network rails (Visa, MasterCard, American Express and Dis- cover). These include: • Apple Pay • Android Pay • Samsung Pay From a consumer standpoint, these mobile wallets conduct payments using Near Field Communication (NFC) at a growing list of supported terminals. The user simply “taps to pay” at an enabled terminal to complete an instant, secure transaction. According to the Aite report, Mobile Proximity Payments: A Disruption in the Force, “NFC has the greatest potential to become the standard transmission method for mobile prox- imity payments. NFC’s nearly ubiquitous presence in smart- phones, the rapid increase of NFC-capable terminals driven by EMV reterminalization in the United States, and the launch of Apple Pay will accelerate implementation and usage of NFC payments.” The Merchant-centric Crowd Conversely, the second set of digital payments players is largely composed of retailers. This relatively new and grow- ing group uses the ACH rails to facilitate payments. Why the push for this breakaway faction? Very simply, money. Going the ACH route essentially costs these merchants little to no money, whereas with the existing card rails, they pay a per- centage of each transaction to both the card network and the issuing bank—the interchange fee. By eliminating the inter- change model—they boost their profit margins. This merchant group includes: By Matt Herren It’s Time to Adapt to the Digital Payments Landscape