Mobility Matters: Will Apple Steal Your Members?
Multiple sources, including the Wall Street Journal, say key Apple executives met with major retailers and other industry heavyweights to explore a new, bigger role in mobile payments.
Time Magazine reported that in his recent quarterly earnings call with Wall Street, Apple CEO Tim Cook said, “You can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices…that it’s a big opportunity on the platform.”
Will Apple take that plunge? Guessing the secretive company’s next steps is hazardous; but, among experts, there is growing consensus that Apple is preparing to make a splash in a growing market. Forrester Research has predicted that mobile payments will vault from $12.8 billion in 2012 to $90 billion in 2017.
Apple already has a presence in mobile payments, where it allows iTunes users to pay for some items with their iPhone at Apple retail stores.
The size of the iTunes universe also is an asset. Apple has said it has 575 million registered iTunes users, all of whom have a payment mechanism associated with the account which is used to buy music, books, films and TV shows through the company’s digital storefronts.
Apple also has been busy debuting new technology that lines up with mobile payments such as Touch ID - fingerprint biometrics on the latest iPhones -- and iBeacon, which can deliver highly location sensitive information to iPhones and also to Android devices (think in-store offers).
The company has also accumulated pertinent patents, such as 20140019367, which pertains to a “method to send payment data through various air interfaces without compromising user data.”
What’s still lacking is a definitive statement of intention by Apple. But experts say it seems likely that the company will go ahead with payments, probably in association with the rollout of iPhone 6, which most believe will occur in the third quarter of 2014.
That gives all the impacted players time to craft a strategic response but know that a response will be needed.
For credit unions, an Apple dive into mobile payments may be a good news - bad news message, said multiple experts contacted by Credit Union Times.
The good news: Apple’s entry into mobile payments might well validate a market that has been slow to coalesce. Pick up of mobile payments by consumers has been anemic. Apple’s entry could change that. iPhone users have exhibited fierce loyalty to Apple and also a strong readiness to buy using their phones. And that might extend into a mobile point of sale universe, said experts.
The terrible news: Credit unions might be further disinter mediated from their members, said Brian Day, an executive with The Members Group in Iowa.
The reason: iTunes preserves the traditional payments vehicles. It generally rides on credit cards, including many offered by credit unions; but in many cases, the credit card to which iTunes bills is what industry experts call opaque to the user.
That is, the member knows iTunes has billed him or her $1.99, but he long ago forgot what card that shows up on. And he probably does not care because his primary relationship in this transaction is with Apple, not with the credit card issuer.
“The credit union would preserve its revenue from the transaction,” said Day, “but it might suffer brand erosion.”
Bank marketing guru Jim Marous, senior vice president, corporate development at New Control, elaborated: “The [credit unions] will still own deposits, loans and credit cards but the all-important customer interface/experience will be Apple's. This reduces a [financial institution’s] role more and more to the commodity level.”
At CU Wallet, the credit union digital wallet, CEO Paul Fiore said: “The credit union impact [from Apple’s entry into mobile payments] would be the same as those posed by other consumer branded solutions such as Google Wallet. Allowing non-financial institution technology providers the chance to innovate in payments by creating a better consumer experience will lead to disintermediation and poses a viable threat.”
Bottomline: experts seem convinced that Apple has no interest in replacing the traditional payment mechanisms such as Visa and Mastercard. So that means credit unions would still see transaction based revenues, but if the members begin to see Apple as their primary financial contact, at what cost would this shift have occurred?
At least some credit unions presently shrug off that threat.
At $55 billion Navy Federal Credit Union in Vienna, Va., Meghan Gound, assistant vice president of eChannels, said: "We are excited to see what Apple does in the payments space. Apple has been building an ecosystem for payments for a while now, with tools like Passbook, Touch ID, and iBeacon, not to mention the large number of credit cards they have on file. At this time, we don't believe that Apple is looking to become a bank or play in the financial management space.”
Ginger Schmeltzer, senior vice president, Emerging Payments at Brookfield, Wis.-based Fiserv, also noted that financial institutions have access to information like account details, which Apple does not have. This gives them some clout in the marketplace.
Schmeltzer offered this pointed advice: “Financial institutions should be tightening links among their mobile banking and mobile payments offerings, so that a consumer's commerce and payments decisions are informed by his or her full financial picture, which is something Apple can't easily provide.”
She added: “Credit unions can make sure their payment products are what consumers want to put into an Apple wallet. Financial institutions have to remain flexible and willing to pivot in this space.”