Apple Pay set to launch in October: What will this mean for banks and credit unions?
Last week, technology giant Apple® announced the launch of its mobile wallet, Apple Pay. Slated to debut in October as a feature on the iPhone 6, Apple Pay will offer contactless payment technology, providing iPhone users the ability to pay for purchases with their smartphones. To utilize the feature in a brick-and-mortar store – retailers like Macy’s, Petco and McDonald’s will be equipped to accept the method of payment come October – Apple says consumers will simply be able to hold their iPhone near the contactless reader with a finger on Touch ID and the payment will automatically be transmitted to the retailer. Users will also be able to tap Apple Pay for in-app purchases. The feature syncs with Apple’s existing Passbook system, and by snapping a photo of a credit or debit card, that method of payment will then be saved to Apple Pay. The company remarked that this new technology will allow consumers’ financial information to be more secure, as their credit and debit card numbers are never stored on Apple servers.
Image courtesy of Apple
Given this news, many financial institutions are asking themselves, how will Apple Pay affect our business? It’s a probing question and one that does not yet have a clear-cut answer. Apple has already partnered with some of the largest bank and credit card companies in the U.S. – Chase, Bank of America, Capital One and American Express to name a few – to launch the feature in October and has noted that others like US Bank, PNC and USAA, will come on board soon. On Friday, The New York Times covered the possible effects in the banking industry in a piece titled, “Banks Bow to Apple Pay,” in the DealBook section. The article notes that banks are eager to partner with Apple on the venture. In order to work with Apple Pay, the partnering banks will assume the immediate cost, as they offer the retailer a lower rate to process a transaction than they would to a typical credit card company (it’s reported that banks are discounting the rate by as much as 10%, according to Bank Innovation).
While the banks will assume the initial cost at the launch of Apple Pay, in addition to more overall transactions, the offset could come in the form of customer reassurance, which has been a hot topic for many consumers. In the wake of several, significant customer-data breaches in the last 18 months, including Target and most recently Home Depot, banks and credit card companies have been working on a technology solution to revamp outdated payment networks. Apple Pay has been in the funnel since January 2013, when Apple began conversations with the major credit card companies. The New York Times describes the new system, which “allows customers to make a payment without handing over any personal details, using a kind of digital token that can be used only once.” Financial institutions are hoping that its success will pave a path for the future of secure payments.