Thoughts on Apple Pay, EMV

This is bonus coverage from “Hurdle the Hype” in the November 2014 issue of Credit Union Management magazine.

Here at Bellco Federal Credit Union in Wyomissing, Pa., we have been looking at Apple Pay and EMV (chip) cards for some time. In this article, I’ll pass along 15 ideas I have, based on information we’ve gathered.

1. In the United States, EMV and Apple Pay currently work only with credit cards. The technology is not working with debit cards because of problems getting it to be compliant with the Dodd-Frank Act requirement of having two competing switches. Debit cards are expected to work with EMV in the future, but who knows when. I have some concern that the megabanks would prefer everyone use credit over debit to increase income and reduce competition.
2. Apple Pay will charge 15 basis points on every transaction done with an iPhone 6. Based on this, expect your expenses to increase, but also that some of that increase could be offset by increased usage and decreased fraud.
3. Apple Pay and chip cards use tokenization technology, which generates unique codes to help secure each transaction; Apple Pay also uses near field communication (radio) technology to communicate to the merchant’s cash register for the transaction. NFC has been available without the protection of tokenization for some time, used by consumers using Google Wallet at places like Starbucks. With Apple Pay, the iPhone 6 creates a token code, just like is done for EMV credit card transactions.
4. A concern I have is that Apple Pay technology may jump right over chip card technology. My current plan is to deploy EMV credit cards first to the top 25 percent of our CU’s high activity users, then replace all other cards at natural reissue points over the next three years. Our vendor charges about $3 for each chipped EMV card, double the non-EMV cost.
5. Apple is such a strong brand with a crazy good following that we expect our top 25 percent of active users to really start using their phones with Apple Pay technology within a year. Breaches have caused members to lose faith in old plastic; our entire industry just got another punch with the breach at Chase. Apple Pay is a welcome replacement.
6. EMV technology is not new. It has been used for more than 10 years outside the United States. It’s functioning well. The United States has lagged implementation.
7. As merchants buy new EMV technology, NFC technology will be included or simply bolt on. Therefore the merchants are ready! Or they will be ready very shortly.
8. Navy Federal Credit Union was one of the mega institutions that tested with Apple Pay. If you check Navy FCU’s website, you can get ideas about what they’re doing and follow the leader.
9. I suggest that you contact your credit card processor as soon as possible, and set a meeting to discuss Apple Pay. Most processors already have pricing and implementation steps in place; they’ve been working with Apple Pay behind closed doors, but were unable to discuss anything until Apple introduced the iPhone 6 a few weeks ago.
10. I also suggest that you go to YouTube, enter “Apple Pay” and watch the demos out there to get an idea of how it works and how fast this is happening.
11. This technology will spread to Android smartphones as they develop an interface linking EMV’s tokenization technology with Android NFC. I expect within a year we’ll have some idea regarding the impact of this advance.
12. At this point, I believe we risk losing some of our most active and profitable members if we can’t deliver this technology in a timely manner.
13. We’re currently working with our processors and plan on telling our members that we’ll be ready to offer Apple Pay in 2015. We are also evaluating all other wallet options like CU Wallet, Visa Checkout and Master Pass to name a few. We expect our members to use multiple wallets.
14. On Oct. 7, we met with our processor and were told that about 20 percent of the processor’s clients have signed on to Apple Pay in the first wave. Most were on the West Coast; few were on the East Coast.
15. The challenge for all of us is how to make our credit card and debit card top of wallet. Why should our members load our credit card in their phone?

I have a young staff. They all want the new Apple 6 and they’re eager to put their best reward credit card in their phones. Some have already purchased the phone for that purpose. Personally, I expect to throw my wallet in my safe at home and carry $40 in a money clip if I can. I hope they get this working with debit soon; that’s big.

CUES member Tom Gosling is president/CEO of $112 million Bellco Federal Credit Union, Wyomissing, Pa.