Are You Playing Checkers, or

Chess?

Moderator: Chris Giles , CEO, CU Wireless

Panelists

Tom Davis, Chief Technology Officer, CSCU

Paul Fiore, Founder & CEO, CU Wallet

George Warfel, Principal, SVP/Payments Strategies, WesPay Advisors

Formulating a Lasting Payments Strategy

in a Rapidly Changing Environment

1950Frank McNamara launches Diner’s Club, the world’s first multipurpose charge card, as a way to pay for meals.

1958American Express issues a purple charge card for travel.

1945 1950 1955 1960 1965 1970 1975

1966InterBank Card Association established a national credit card system. ICA was the predecessor of MasterCard Worldwide.

Payments Timeline 1950-70

1959American Express issues the first plastic charge card.

1979 The magnetic stripe is standardized and the first POS replaces the “knucklebuster” manual imprint machine.

1978The first debit card is issued by First National Bank of Seattle.

1970Mag stripe card introduced.

1970 1975 1980 1985 1990 1995 2000

Payments Timeline 1970-2000

1979The first credit card terminal is introduced.

1972

ACH is

developed.

1986Discover Card introduced at the Super Bowl.

1997Coca Cola machines allow payment using a text message from a mobile phone.

1994EMV Chip introduced in payment cards (international standards are finalized).

2009 Starbucks trials acceptance of mobile payments.

2007First mobile payment system M-Pesa, launched in Kenya by Vodaphone.

2009Bitcoin Introduced

2005 2010 2011 2012 2013 2014 2015

Payments Timeline 2000-2015

2011 Google Wallet app was released.

2003NFC is approved as ISO standard.

2014 Apple Pay released.

2012MasterCard and Visa set October 1, 2015, as the date when U.S. card issuers would need to replace existingcredit and debit magnetic stripe cards with chip cards.

2008Discover acquires Diners Club.

2015 Samsung Pay Introduced

2015Walmart Pay, Chase Pay, CitiPay announced.

EVOLUTION OF PAYMENTS

• Pre-internet: shopping then payment (face to face)

• Online: Need authentication and personal info

including shipping (enter PayPal)

• Mobile: Add location and registered device

WALLET – THE OPPORTUNITY

• Payment integrated into the shopping experience

• Before the purchase:

• Research/location

• Reviews/social

• Incentives/offers

• Purchase:

• Frictionless

VALUE-ADDED PROVIDERS

• The companies who are in position during critical points

of the shopping experience

• e.g.: Airline knows departure date and arrival city, offers hotel

and rental car

• Companies in that critical position are:

• Mobile device manufacturers

• Search providers

• Social media platforms

• Retailers

• Financial institutions

GATEKEEPERS

• Companies that insert themselves between the consumer

and the product/ service provider

• Uber between passenger and driver

• Priceline between guest and hotel operator

• The winner gets the ultimate prize

• Starwood + Marriott + Hyatt + Hilton + Intercontinental = $66

Billion market cap

• Priceline = $64 Billion market cap

9

Learning to think and act strategically is the

challenge to credit unions and banks

A different game demands a different way of

thinking and acting

Not watching in three directions, but in

eight directions

Not matching move for move, matching

strategy with strategy

Not where is my competitor now, but

where will they be next?

Strategy has become chess, its not checkers any longer

10

Fintech and New Payments?

Most ‘new payments’ create payments business for FI’s

Over 85% of Fintech payments are card transactions

A bunch of the remainder are ACH transactions

We should be so lucky that a bunch of people use ‘You Name It

Pay’ because the transaction almost always starts and ends at

a credit union or a bank

Recent Fed research:

Ownership of new payments apps is up 50%, but ownership of bank

and CU payments accounts has not dropped at all

By the Fed’s research, when Bitcoin/Ripple reach 50% of the adoption

curve, payment volume will be too small to measure

11

Are Uber and Airbnb models for

potential payments competitors?

Might not be the threat we imagine

Uber’s model wouldn’t work well for general payments

The business model is a hiring hall

Risk events are seldom if ever felt by the firm

Payments are handled by Braintree (owned by PayPal)

Same for Airbnb: payments are processed by Adyen

Never say never, but either firm getting directly into the

general purpose payments business would mean

changing their business model drastically

12

Are other FI’s my competitor?

Our existential competitors are not the big banks

They are not credit unions or the small banks (except one)

FI’s following the model of CDW Bank in Weir, Kansas, founded in 1892, would

be competitors to banks and CUs

CDW moves customer’s

payments world-wide, in

seconds, on the debit card rails,

for pennies

Run by an ex-Google Ph.D.

engineer and his wife

who is a former Wall Street

trader

13

Might on-line lenders get into payments?

The business model is to make loans of mainstream banks’ money and

immediately securitize and sell them to hedge funds as CDOs

Without deposits, they have no other choice

This trading company business model is not well suited to doing payments

But…..it is a closer model than Uber or Airbnb

14

Are banks outside the U.S. a threat?

What is the most aggressively growing card brand in the U.S. today?

China Union Pay – processed on the Discover network

Issued by banks throughout China and Asia

Issued in the U.S. by The Bankcorp

World-wide brand recognition

Over 80% of merchants in the U.S. accept UnionPay cards. Since some of the merchants have yet to put up the

UnionPay signage, cardholders may show their UnionPay cards and inquire about UnionPay acceptance. In the

US, over 90% of ATMs accept UnionPay cards. Cardholders can withdraw cash at ATMs displaying the signage

of Pulse and STAR (China Union Pay Website)

15

Why banks outside a threat?

Faster Payments is the next big challenge U.S. credit unions and banks will

be facing

The challenge is more than just hooking up to a new, faster network

The challenge includes the internal processing of the payments faster as

well

Only two FI’s in the U.S. are able to process immediate payments

immediately: BBVA and Santander, because they run on their E.U. parents’

SEPA technology

• Biometrics

• Wearables

• Internet of Things

• Bitcoin and the Block Chain

What else is out there?

• Fingerprints

• Retinal

• Facial

• Geolocation

• Combination?

• Driven by Mobile Handset Hardware

• Speed – Streamlined… Especially with Proximity Payments

• Accuracy

Biometrics

• Apple Watch first payment wearable

• Samsung Gear 2 TBD

• Coin working with MC to license technology to several watch makers

• Fit Pay releases the Pagaré band (NFC)

• Kerv payment ring

• Security

• Opening up a new world of “Pays”

Watches

Connected

Cars

Connected

Appliances

Connected

Homes

ContactInformation

Moderator

Chris Giles , CEO, CU Wirelesscgiles@cuwireless.com

Panelists

Tom Davis, Chief Technology Officer, CSCUTDavis@cscu.net

Paul Fiore, Founder & CEO, CU WalletPfiore@cuwallet.com

George Warfel, Principal, SVP/Payments Strategies, WesPay AdvisorsGwarfel@wespayadvisors.com

Formulating a Lasting Payments Strategy

in a Rapidly Changing Environment