Apple Pay Now or Later?

At noon on April 22, 1889, when the starter’s pistol set off the Oklahoma land rush, those who were ready profited spectacularly. Now credit union managers are trying to decide whether the stakes are similarly high as Apple opens  access to the Apple Pay territory. The fact that the 10 largest issuers have been given a “head start” heightens the sense that a race is on. Now consultants and educators are busy helping CU executives decide whether this represents a huge opportunity or a modest one, a bargain or a revenue spoiler, a time to move boldly or cautiously. Among the experts, there is no consensus.

The question of whether small and mid-sized banks and credit unions should sign up right away for Apple Pay is easy to answer, insists Bob Roth, managing director at Cornerstone Advisors, a CUES Supplier member and strategic provider in Scottsdale, Ariz.

They should.

“Sign the paperwork, a three-year contract, and get it going,” he recommends. There’s no up-front cost and no systems development. The charge is reasonable. You just give up 10 percent of interchange value, and you can offer members access to a state-of-the-art payment system regardless of your size, he points out. “It’s a chance to roll out high-end technology that will appeal to millennials at zero investment. You don’t see that often. We were skeptical at first, but now see no reason why CUs shouldn’t climb on the bandwagon as soon as they can.”

That’s what Apple wants you to think, counters Chris Gardner, cofounder of Paydiant Inc., the Boston-based mobile payment platform provider. “But the Apple 'fairy dust' that accompanied the launch has now dissipated and CUs are beginning to take a hard look at the economics and business implications of joining Apple Pay,” he reports.

For good reason, he insists. Only 3 percent of merchant locations can accept Apple Pay, it only works on the very newest iPhone 6 devices, and Android still has roughly 50 percent market share in the United States. It will take quite some time before there is meaningful hardware penetration and user adoption of Apple Pay. CUs still have plenty of time to study the pros and cons and make a rational, well-informed business decision about whether Apple Pay will benefit their CU and its members, he insists.  

Those low usage numbers underestimate the stakes, insists John Best, founder of Best Innovation Group Inc., Colorado Springs.

“It’s time to act now,” he argues. There are evolutionary innovations like offering personal financial management, where you can move slowly, and then there are revolutionary innovations like remote deposit capture where you have to move fast, he explains.  

“Members demanded RDC, complained and threatened to leave if they couldn’t get it right away.” Mobile payments will be like that, he predicts. “Everyone has to shop. If members expect to be able to pay with a mobile device, you’d better offer it or the member will find somebody that does. The sooner you can provide it, the better you can hold onto your members.”

You don’t get a lot of chances to get the top spot in a member’s wallet, Roth notes. “The top card is the wallet,” he insists. “All the others are back-up, to be used for rare exceptions.” That’s why CUs are scrambling to offer Apple Pay before another issuer snags that top spot in their members’ wallets, he notes.

“CUs can’t ignore Apple Pay,” agrees David Hall, SVP/vendor alliance partnerships at CUES Supplier member PSCU, a CUSO based in St. Petersburg, Fla., that helps CUs link to payments networks. “It attracts Millennials and raises expectations of members. “CU’s shouldn’t ignore Apple Pay. Relevancy with members, especially younger members, is key. While there is some cost, via reduced interchange, credit unions must weigh that against the business risk of not offering the product when the largest financial institutions are already in market. The most successful credit unions are transferring their top-of-wallet strategies to the ‘digital wallet.’ The same rules for penetration, activation and usage apply tomorrow as they do today.”

That sounds reasonable to Bill Arnold, chief information officer for $2.4 billion Service Credit Union, Portsmouth, N.H. “We’re watching the buying preferences of Millennials, and 67-70 percent of them say they want their next phone to be an iPhone, regardless of what phone they’re currently using,” he explains.  “Our members have bought or will be buying iPhones that can use Apple Pay. The big issuers are partnering with Apple. We want members to have our card, not theirs, at the top of their mobile wallets.”

Apple Pay could be a ready-made solution to holding Millennials. Or it could be a Trojan horse. “Apple Pay is actually very expensive for CUs,” cautions financial institution consultant Richard Crone, founder and CEO of Crone Consulting, LLC, San Carlos, Calif. “Signing up means getting a new mouth to feed. In five days, Apple did what the retailers collectively couldn’t accomplish in 10 years, which is get a pound of flesh from issuers for every transaction.”

But he concedes that catering to Millennials is essential and that using Apple Pay may be costly but necessary. The average CU member is now more than 50 years old, he notes and “we’ve worked with CUs with an average member age over 65. More than half of Millennials (those 18-35 years old) have indicated in surveys that they would change their primary banking relationship to get mobile pay, and CUs can’t afford to let that happen.”

Richard H. Gamble is a freelance writer based in Colorado.