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What Apple Pay and Apple Watch Mean to Banks and Credit Unions

2014 September 11
by David Eads

After years of speculation, Apple finally released an iPhone with NFC mobile payments capabilities. What many of the pundits didn’t see coming was NFC in the Apple Watch. As usual with Apple launches, there’s a swirl of confusing commentary about whether these new products are awesome or awful. Only time will tell. Reality is probably somewhere in between.
Apple Pay mobile payments
However, I think the world fundamentally has changed for banks and credit unions with this announcement.

Apple Pay

Obviously mobile payments got a huge boost with Apple Pay. The timing right before the holiday season as in the shadow of the October 2015 liability shift for EMV card payment support means that the entire US Payments market (issuers, acquirers, and merchants) are forced to think about their payments infrastructure. Many merchants have no choice but to upgrade to support EMV. Most banks and credit unions also must distribute new cards and update infrastructure to support EMV.

Now it’s a no brainer to support NFC when upgrading equipment for EMV. Apple has also done everyone a huge favor by rounding up (what’s hopefully) a critical mass of merchants and issuers to support NFC mobile payments. This is also a shot-in-the-arm for Google Wallet. Android phones increasingly support NFC mobile payments and Apple’s efforts have expanded the universe of opportunity to pay with a mobile phone.

Conceivably, mobile payments will have a measurable impact on purchases THIS holiday season. Even if it’s a few basis points, it’ll be a huge market shift in just a few months.

Last year, 29% of ecommerce purchases (source: NRF) were from mobile. If iPhone upgrades mirror previous cycles, there will be millions of NFC iPhones in the hands of US consumers this November. Those early adopters will be itching to try out mobile payments right as they have to do their holiday shopping.

Apple Watch

Banks and Credit Unions must start thinking about Apple Watch now. I wasn’t excited about it until the unveiling. Now I think it’s going to change consumer engagement with their financial institution.

The Apple Watch is the perfect alerting platform. Consumers will expect fraud alerts and other appropriate messages from their financial institutions.

Secondly, consumers will expect financial health applications on their Apple Watch. Like the Health Monitoring app Apple demonstrated, consumers will want to see their current balances and financial health gamification that may include such factors as daily or monthly spending, credit score, savings, investment performance, and so on.

Lastly, Apple Watch supports mobile payments. Consumers don’t even have to pull their phone from their pocket to pay for smaller items. (Presumably Apple Watch purchases will be limited to smaller amounts since it doesn’t support Touch ID, Apple’s biometric fingerprint identification mechanism).

In summary, Apple has disrupted the industry yet again, regardless of how their products perform in the market. Institutions cannot continue slowing evolving their digital channel offerings. Apple is creating opportunities for non-traditional FIs. If you don’t serve your customers, someone else will.

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