Are smartphone-based payment platforms right for your bank?

Surveys show bank customers are interested in smartphone-based payment platforms. But with merchant acceptance still low, should community banks be jumping on this particular bandwagon?

By Karen Epper Hoffman

When it comes to dominating the mobile channel, community banks are making sure they are working their way into customers’ wallets—even as those “wallets” move to their phones.

The use of cash is expected to decrease from 67 percent to 56 percent of transactions by 2020 as people transition to electronic forms of payment, according to a 2016 digital payments survey from Accenture. And rather than sit on the sidelines or play defense, some community banks are lining up to offer their customers support for mobile wallets, including Apple Pay, Android Pay and Samsung Pay—or “the Pays,” as at least one banker calls them. There are also new options offered by card brands, such as the Visa Digital Commerce App, which launched in June 2016. All these platforms allow users to store their credit or debit card information in their mobile device and then use it to pay at a point of sale.

“The largest barrier to adoption at this point is merchant participation.”
—CarrieAnne Cormier, Avidia Bank

Take, for example, the Bank of New Hampshire, which launched its support for Apple Pay in November 2015 and followed with support for Android Pay and Samsung Pay in July 2016. Even today, the 23-branch, $1.4 billion-asset bank is one of the few community banks in New Hampshire to offer all three mobile wallet options, according to Eric C. Carter, senior vice president, electronic banking manager at the Laconia, N.H.-based bank. He says with the support of the bank’s processor, the initial Apple Pay project took about two months, and Android Pay and Samsung Pay took less than six weeks.

“Our bank has always been a technology leader,” says Carter, noting that Bank of New Hampshire began offering image-enabled ATMs at the same time as Bank of America. “We’re not on the bleeding edge, but we want to be out on the forefront.”

Similarly, Hudson, Mass.-based Avidia Bank has supported the Pays for two years now, according to CarrieAnne Cormier, vice president for retail operations and strategy at the $1.3 billion-asset bank. “We were not so much an early adopter,” Cormier says, “and there was not a great deal of customer demand out there [when we began offering it]. But we could see where the technology is going.”

What is tokenization?

Rather than storing a customer’s payment card details on a mobile device, platforms like Apple Pay and Samsung Pay use tokenization. This converts card details into a token, or a string of random numbers and letters, which is meaningless outside of the transaction. In this way, the customer’s card details are never exposed. Compare this to a standard credit or debit card transaction, where card details can be compromised at any number of points during a transaction.

Staying competitive in mobile
Despite early promises of wildfire growth in mobile wallet usage, this payment option has not exactly taken the country by storm—yet. According to Carter, Bank of New Hampshire is still conducting fewer than 1,000 mobile wallet-initiated transactions each month, even though the bank has a 40,000-strong debit card portfolio. “There is no doubt that it’s still early days,” he says, harking back to the bank’s slow buildup with contactless card acceptance.

Echoing the sentiments of other bankers, Carter says mobile-wallet usage is not growing rapidly because big merchants are not yet supporting it. “The largest barrier to adoption at this point is merchant participation,” he says, adding that Apple announced that 35 percent of retailers accept Apple Pay in the United States.

“Samsung Pay does have an advantage in their acceptance rate due to their use of magstripe emulation [where a mobile wallet can also be used at magstripe-only point-of-sale terminals], so it can be accepted virtually anywhere a debit card is accepted.”

Similarly, Cormier says that while nearly two-thirds (64 percent) of Avidia Bank’s checking account customers use mobile banking, only about 3 percent of its customers actively use one of the bank’s three mobile wallet offerings. She believes convenience, as well as merchant acceptance (or lack thereof), plays a role in mobile wallet’s slow growth.

“Myself, I look for channels and options that are the most convenient,” Cormier says. To improve the convenience factor and encourage customer use, Avidia Bank is working on integrating Apple Pay into its mobile banking app.

A recent study by ICBA Bancard and Mastercard found that while 53 percent of community bank customers are at least “somewhat interested” in mobile payment solutions, only a quarter of frequent mobile banking users have used a mobile wallet option like Samsung Pay or Apple Pay at the checkout. That disconnect can be especially frustrating for community banks that see the opportunity that mobile wallet presents but cannot move the needle on the challenge of greater merchant acceptance.

But forward-thinking community banks are pressing ahead with mobile wallet. To them, waiting until the technology is ready for prime time would mean ceding the market to larger and better-prepared rivals. Several larger banks are already bringing their own proprietary wallet applications to the market, including Wells Fargo & Co. and JPMorgan Chase & Co.; and credit unions are sharing resources on their own m-wallet efforts through groups like CU Wallet.

And it seems they’ve got their fingers on the pulse: Market research firm eMarketer expects digital payments to rocket from about $9 billion in 2015 to $210.5 billion by 2019.

of community bank customers are at least “somewhat interested” in mobile payment solutions

Security boost
So, despite the uphill slog, bankers say the potential benefits of mobile wallet are too tantalizing to ignore. One of these is stronger security. Since mobile wallets use tokenization, the customer’s card details are never passed to the merchant.

“Instead, a one-time-use card number [or token] is utilized during the transaction, protecting the card details,” Carter says. “In our current environment, where we regularly see merchant compromises, this is a significant feature.” (See “What is tokenization?”) Mobile wallets used on smartphones with fingerprint readers can also harness biometric security, which Carter says is “far superior to a standard debit card.”

“The largest barrier to adoption at this point is merchant participation.”
—CarrieAnne Cormier, Avidia Bank

While mobile wallet may, in fact, offer better transactional security, community banks that offer it are still on the front line of schooling customers and even their own employees. JD Bank in Jennings, La., offers all three Pays to its customers, says Ann Barilleaux, vice president and marketing director of the $860 million-asset bank. “How the mobile wallet works and tokenization can be a little bit confusing, so there were some misperceptions of the security for transactions,” she says. JD Bank educated employees and customers through branch brochures and videos on its website.

“With the increasing technology maturity of our customers, they expect the latest and greatest services available,” says Carter. “Convenience is one of the primary factors in selecting a financial institution. Offering mobile wallets is another mechanism to increase customer satisfaction and strengthen relationships.”

What’s in banking’s future?

This year’s ICBA Capital Summit features the
Future of Banking Symposium on May 1. Attendees will get a glimpse of the coming technological, regulatory and lending landscape. Register today at

Karen Epper Hoffman is a financial writer in Washington state.