Will Apple Kill Plastic?
Does Apple Pay presage the death of the plastic credit card?
Introduced nearly half a century ago, the credit card has changed very little since then.
Experts predict that soon, EMV, also known as chip and PIN, will become more prevalent in the U.S. The payment tool changes the format by replacing a card’s mag stripe, which tends to be vulnerable to skimmers, with a tiny computer chip. While EMV is relatively new in to the U.S., the technology is two decades old.
So, are plastic cards headed to the morgue as smartphone owners, paced by the many millions set to receive iPhone 6 with Apple Pay, demand to pay by phone?
Credit cards are going nowhere soon but credit unions had better get in motion plotting their roles in a world where mobile payments are picking up in volume.
“There definitely is disruption going on. It’s not clear how we will be impacted. There are opportunities. There are also threats,” John De Ieso, chief information officer at the $2.2 billion NEFCU in Westbury, N.Y., said. “This adds to the list of uncertainties we face.”
Bob Legters, SVP of payments, at the Jacksonville, Fla.-based financial technology company FIS, said, “Plastic cards will die but the question is when.”
Jorn Lambert, group executive of digital convergence at MasterCard, echoed Legters’ prediction.
“We have no interest in plastic dying. We don’t believe it will die anytime soon, certainly not for 15 to 20 years,” he noted.
Many consumers, particularly baby boomers, will cling to credit cards, Polly Bauer, CEO of Polly Bauer & Associates Inc., a New Port Richey, Fla.-based consulting firm, said. She is also the former president/CEO of the Home Shopping Network Credit Corp., and once managed a $950 million credit card portfolio.
“There is no reason to panic,” she reassured.
None of the experts contacted by CU Times thought otherwise. Some believe it is inevitable that plastic cards will fade away, but that is not a prescription to immediately stop issuing them.
Meanwhile, money may speed the rise of mobile payments.
“Right now, the costs of plastic cards and mobile payments are about the same, especially when EMV is factored in. But mobile will get cheaper,” Brandon Kuehl, senior product manager for payments processor The Members Group in Des Moines, Iowa, said.
That may be so, but plastic cards are expected to be dominant for years.
“The real question for credit unions is ‘when is the right time to diversify so I don’t get left behind? When do I get involved in mobile?’” Legters said.
The stakes are high. Matthew Goldman, CEO of the Pasadena, Calif. e-Wallet company Wallaby, said, “Very smart people in payments are well aware of how Apple destroyed the music business.”
There is no disagreeing with that. Thirteen years into the iPod and iTunes revolution, Apple has thoroughly disrupted music, where the company, not the record labels, now holds most of the power. Apple also largely killed off music formats other than MP3 such as CDs and tape cassettes.
Nobody in payments wants to suffer a similar fate, Goldman suggested, and for that reason alone, it is key to find roles to play in an emerging payments universe.
MasterCard’s Lambert said as mobile payments takes off, there will be a place for smaller financial institutions.
“The institution has to do a little work, mainly related to risk management and around customer service,” he explained. “You need a risk management process at the moment of enrollment.”
There has to be a clear decision process around this particular card and this consumer and how likely they are to defraud the institution. Lambert said by having that type of infrastructure in place, a credit union should have a strong foundation before plunging into mobile payments.
Many credit unions likely will, some experts contend.
“Financial institutions that were not picked by Apple to be in the initial launch seem concerned. But it’s not bad that you got snubbed,” Nick Holland, senior analyst in the payments practice with Javelin Strategy + Research, said.
That is, there’s plenty of time to adopt a mobile payments platform.
What does all this mean for credit unions?
FIS’s Legters said the advice for credit unions now is to “mirror what the large issuers are doing, as much as you can afford.”
For instance, study the initiatives from Chase, the $60 billion Navy Federal Credit Union in Vienna, Va., USAA and other early adopters and where it makes sense financially and for a specific membership, replicate those models, Legters suggested.
At NEFCU, De Ieso said he is doing likewise.
“It’s early. Right now, it’s a matter of gathering information. We are understanding what everybody’s take is on this. Our eyes are open and we are preparing for the future.”