Why Apple Pay is a Game Changer

September 15, 2014 at 8:38 am Leave a comment

It’s been about a week now since Apple engaged in what’s become the adult version of Christmas Eve when it previewed its newest must-have gadgets.  You undoubtedly have heard by now that Apple will be unveiling a mobile payment system with enhanced security features.  Its modest goal is to make plastic payments obsolete and it has already signed up the largest banks in the Country and Navy Federal Credit Union.  These institutions have agreed to give Apple a piece of every iPay, sorry, I mean Apple Pay transaction.

If you think that mobile payments will continue to be a small part of the transactions market, or if you think that several competing platforms will be sufficient to meet the payment needs of your members, then you will disagree with everything I am about to say.  If, on the other hand, you believe, as I do, that an 800 pound gorilla with the potential of upending traditional banking models has just entered the room, then you should keep on reading.  Here are some of the biggest challenges that Apple’s entry into mobile payment presents to your credit union.

  • The credit union industry is not exactly fast on its feet, but my guess is on a practical level you will have to decide quickly if you want your members to be able to access Apple Pay with their debit and credit cards. (All those people who pre-ordered their IPhones are going to be mighty upset if they realize they can’t use Apple Pay)  If you answer yes, remember that this is going to cost money.  If you answer no, then you run the risk of members establishing alternative financial relationships with those institutions that sign up.
  • On the bright side, Apple may have the leverage to prod merchants into upgrading their systems.  As I understand the technology, merchants will have to equip their stores to handle Apple Pay transactions.  As the merchants do so, perhaps they will bite the bullet and retrofit their machines for EMV cards, as well.
  • In a best case scenario, Apple increases your credit union income by expanding the use of mobile payment as people use their cell phones to pay for transactions they would have paid for with cash.  In a worst case scenario, people will  use their cell phones for purchases they would have made with plastic.  Over time, those extra fees you are paying to Apple will really begin to eat in to your credit union’s bottom line.  Think of it this way, just a few years ago, credit unions fought to protect the right of smaller institutions to be exempt from a debit card interchange cap.  Now those same institutions are going to have pay more money to Apple or run the risk of sitting on the sidelines during a mobile payment boom.  How many record companies are out there today that don’t provide access to iTunes?

In an article in the CUTimes this morning MasterCard reassured credit unions that credit unions have a place with Mastercard and Apple.  The statement kind of reminds me of the GM who tells everyone that the  coaches’ job is safe: If it was really safe the GM wouldn’t have to say anything.

 One of my favorite lines about business is that the most successful companies aren’t the ones that build better mousetraps but the ones that know how to sell the better mousetraps.  The financial industry breathed a collective sign of relief last week because Apple decided not to compete against VISA and MasterCard at this point but instead chose to integrate its own payment system onto existing platforms.  But let’s not overlook the fact that the same company that bankrupted Kodak has as its goal to be the pre-eminent processor of all consumer payments.  My worst case scenario is that the credit union and community bank branch is as obsolete 10 years from now as film is today.

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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