Hello iBank?

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Hello iBank?

In light of Apple announcing its new “Apple Pay” system, there has been considerable speculation about the ramifications this development could have on the financial industry. Some cry “the end is nigh” for traditional banking, while others say this is a step in the right direction. Let’s wade through all the hullabaloo and iron out the what’s what of NFC banking, and the implications it could have on credit unions.

What?

NFC stands for near-field communications and it’s a pretty basic concept: you store your credit card information in an app, and when you see this symbol at a retailer: 

Hello iBank? NFC Contactless Icon

...you can simply tap your phone to a sensor and the transaction will be complete.

How?

Understandably, some may be weary of storing financial information on their phone. In reality, Apple Pay is more secure than swiping, and here’s why:

  • Each payment requires fingerprint verification.
  • Your account numbers will never be sent to Apple or the retailer. The iPhone will create a proxy number, “tokenizing” your information for the transaction.
  •  If you lose your phone (and your fingers) you can disable Apple Pay with the “Find my iPhone” app.

Who?

With NFC-enabled mobile devices, Apple is following its trend of taking an existing technology and spinning it to have mass appeal, giving them a large advantage in integrating Apple Pay over competitors like Google Wallet. Apple has already signed agreements with American Express, Visa, and Mastercard to implement the technology, and major retailers like McDonald’s, Walgreens, and Macy’s have signed on. However, the Merchant Customer Exchange (MCX) (formed by giants like Wal-Mart and CVS) are unrolling their own CurrentC system to compete with Apple Pay.

Why? Why not?

NFC systems make for faster and safer spending. Nevertheless, some question if it is worth the financial burden of installing NFC-readers. Apple feels the convenience and security of the system will provide for more profitable transactions. MCX merchants account for over $1 trillion of consumer spending, but MCX retailer Best Buy shut down its NFC terminals due to lack of action. However, MCX representative Dodd Roberts feels that “consumers may not know that their experience engaging in commerce could be so much better than it is now.” He likened the developing NFC technology to the old Henry Ford adage that Americans wouldn’t have known they wanted an automobile, they would simply have asked for a faster horse.

When?

Whether you’re excited or nervous about the rise of systems like Apple Pay, Barclaycard US predicts it will take 8 years “at best” before the widespread adoption of mobile commerce in the United States. Why?

Where?

NFC-systems are developing slowly in the US. Globally, NFC-systems have taken hold, with the biggest implementations in Asian countries:

So what?

With massive companies like Apple and Google turning their influential gaze on finance, it’s understandable for smaller financial institutions to be nervous. Well, there’s good news and bad news. We’re optimists here at The Pod, so we’ll start with the good.

The Good News:

If Apple Pay kicks off, credit unions will have no trouble hopping on the bandwagon. Brandon Bogler, a TMG executive said “We have been getting a lot of inquiries from credit unions. They all want to know if they can participate;” and the answer is yes. “We are building the pipes to allow any and all FIs that want to participate to be able to do so, without having to do a lot of custom development,” said David Cramer, a Visa executive. Specifics have not been revealed, but the details will be announced imminently. Additionally, this could be a huge marketing opportunity for CUs to ride the technological wave and team up with Apple to provide a simpler, safer experience for their customers.

The (Potentially) Bad News:

The current prognosis is that neither merchants nor consumers are particularly eager to embrace NFC technology. So don’t get worked up by the tech blogger crying “THIS IS THE END OF BANKING AS WE KNOW IT.” You won’t see the Apple Store replaced with the “iBank” due to the high cost and strict regulations that are involved with the financial industry. That said, let’s take a look at possible “big picture” risks:

  • The interchange cost of paying with Apple Pay or CurrentC might be significantly lower than what credit unions or banks can offer. Last year, we produced a video interview with Jim Giacobbe, CEO of United Solutions, and this is what he had to say about the forthcoming impact of mobile wallet technology on the credit union industry.
  • Elimination of credit cards could cause consumers to associate finance with massive companies like Apple, or Amazon.
  • According to Moven founder Brett King; “Google, Apple, Facebook, and Amazon… will increasingly be in the business of selling banking products, apps and services to consumers... they’re going to be looking at owning more and more of the payment process because of the opportunity for high-frequency, low-margin revenue and the ability to capture purchase behavior insight.”
  • As NFC transactions grow, companies like Google could obtain massive amounts of behavioral insight on their customers’ financial patterns, allow them to deliver personalized financial advice and solutions.
  • A Forrester report entitled “Why Google Bank Won’t Happen” outlines that these companies “could easily become a financial services hub to facilitate the relationship between consumers and traditional providers of financial services.”

The Bottom-line

This is all conjectural, but there’s an underlying message: Remain aware, stay current. Find out how you can get involved with Apple Pay/CurrentC. By staying on top of technological and social trends, your CU could help lead the next financial revolution, and The Pod is here to help every step of the way.

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