The adoption of new anti-fraud card technology is prompting more community banks to consider supporting Apple Pay.
Many of the merchant terminal upgrades that accompany the EMV migration ahead of the October liability shift will include Near Field Communication, the technology that powers Apple Pay.
As a result, many banks are likely to go ahead and embrace mobile commerce, too. Smaller banks can benefit from mobile technology, since it can level the technological playing field against larger competitors.
This is the future, said Greg Coogan, president and chief executive of West Bay Partners, a technology consulting firm. You either embrace it or you get clobbered by it. You need this to compete.
Roughly 60% of point-of-sale locations will be ready for EMV-chip technology in October, said Thad Peterson, a senior analyst at Aite Group. Most of those locations will also be equipped to accept NFC payments if the retailer decides to turn that option on, he said.
Mobile payments, which have been available for a while, initially struggled to gain a critical level of usage.
Apple Pay, however, has created a buzz with consumers and piqued bankers interest since its October launch. It has grown from working with six financial institutions to being accepted by more than 2,500 card issuers. There has been strong interest in Apple Pay at banks that work with Fiserv, said David Keenan, Fiservs senior vice president of network solutions.
Apple Pays debut was well-timed; it came out closer to EMVs implementation. As a result, more merchants are ready to accept this form of payment, industry experts said.
A spokeswoman for Apple Pay declined to comment beyond her companys prior statements on the initiative.
Apple Pay isnt really anything new in terms of technology, said Nick Holland, head of the payments practice area at Javelin Strategy & Research. They just packaged it nicely and brought it to the mainstream. Now we will see a variety of other initiatives.
Customers Bancorp in Wyomissing, Pa., was one of the first banks to partner with Apple Pay. About two-thirds of Customers clients have signed up for it, said Warren Taylor, the $6.8 billion-asset companys president of retail banking. Customers decided to join partly because of EMV and the greater acceptance of mobile payments that is bringing, he said.
Though there are only about 500 million near-field communications phones globally, the concept is starting to take off. Any bank that doesnt offer Apple Pay will be at a disadvantage, Taylor said. This levels the playing field. Its easy for a bank to set up, and really relatively inexpensive, so almost anyone can afford to do it.
It takes very few resources for a bank to sign up with Apple, and a banks asset size shouldnt affect its ability to work with Apple Pay, Peterson said.
Apple takes a cut of the card issuers interchange fees, but the amount is small enough that it shouldnt discourage potential partners, industry experts said. So far, the experience has been effortless for customers using it to make purchases and for banks that sign up, Taylor said.
This is an opportunity for banks and credit unions to be associated with a premier consumer brand, Holland said. Banks see this as cutting edge. This is clearly a way for smaller institutions to have the same clout as the bigger ones.
Associated Banc-Corp deliberately became an early adopter of Apple Pay because it thought this was an area that will be increasingly important, and EMV was potentially one of the catalysts to drive acceptance, said Brent Tischler, the Green Bay, Wis., companys director of channel optimization. The $26.7 billion-asset Associated, which also works with Mastercard MasterPass, is also interested in learning more about rival systems such as Samsung Pay.
We believe the digital payments space, though relatively small, will continue to grow and that growth will accelerate, Tischler said. It would be risky long term for banks to stay on the sidelines. It will be important for customer acquisition and retention.
Still, some of the hype over Apple Pay has been overblown, industry observers said. The excitement is likely to encourage others to enter the mobile payments arena, further fragmenting the business. It could cause some consumers to opt out of Apple Pay, some observers said, adding that concerns still exist about potential fraud.
The hype is over the top, said Chuck Winter at consulting firm North Highland. Some form of mobile wallet will emerge, but I think we dont know enough about the consumer and their behavior to say which one will win.
Customer adoption of Apple Pay has been modest despite banks excitement, industry experts said. This could be partly because there are several steps, including having an issuer sign up before cardholders enroll, before purchases can be made, Keenan said. Still, this hasnt dampened bankers enthusiasm, he added.
While banks have the ability to embed contactless technology into their own cards, many may elect against it due to the cost, Keenan said. Adoption rates could increase if such costs start to fall.
Associated is still considering contactless technology as it plans its EMV-chip card, Tischler said, admitting that the costs make the effort less appealing.
Even as institutions are very interested in mobile-base payments, it hasnt dampened their enthusiasm for chip cards, Keenan said. Were in the first inning of the game for mobile-based payments.