By Scott Van Voorhis
Apple Pay had barely reached consumers’ digital wallets last fall when overeager critics pounced, declaring the new mobile payments product a “fizzle.”
To Empire State banks and credit unions, rushing to jump on the latest development in mobile payments technology to stay relevant with tech-savvy customers, it was bewildering news indeed. But three months out, the critics are the ones now looking foolish, with Apple making clear it is here to stay with its potentially revolutionary new product.
Despite some early hiccups, Apple Pay is steadily building a network of customers and retailers, industry experts say. That, in turn, has more than redeemed the decision by financial institutions, ranging from Bank of America and JP Morgan to hometown lenders, to embrace the new product.
In fact, with Apple Pay increasingly under their belts, banks and credit unions across the state are now looking to the next round of mobile payment products as they seek to provide more payments options for increasingly mobile-centric customers.
“Apple Pay has gotten off to a good start and will only get stronger going forward,” said Thad Peterson, senior analyst in the Boston office of the Aite Group. “I don’t think they are in any rush – they know they have a terrific product.”
Come on in, the Liquidity’s Fine
The mega banks were the first off the block with Apple Pay, with BofA aggressively promoting its alliance with the mobile payment product on its website. Other behemoths like JP Morgan and Chase Bank are also pushing Apple Pay, with 90 percent of bank cards now linked into the mobile payments system, Peterson said.
But smaller banks and credit unions are not far behind.
Bethpage Federal Credit Union on Long Island, one of the state’s largest, is the first credit union in the state to sign up with Apple Pay, noted Ronald McLean, senior vice president of the New York Credit Union Association.
Another 19 credit unions across the state, from “New York City to Buffalo to the Finger Lakes,” are in the process of joining up, McLean said.
“I think that will accelerate going forward,” he said.
Credit union executives realize offering a mobile payment option can be key in attracting younger members, he said.
“Credit unions understand the need to attract and interact with younger members, [particularly] Millennials,” McLean said. “Apple Pay is right in that wheelhouse.”
Regional banks are also joining up, including Cleveland-based KeyBank, which has a major presence in New York State, Providence-based Citizens Bank and Buffalo-based M&T Bank, the Albany Business Journal reported. Smaller banks that have joined forces with Apple Pay include Glen Falls National Bank and Trust, First Niagara Bank and Saratoga National Bank and Trust, the paper noted.
While connecting with younger customers is great, for smaller lenders, doing nothing isn’t really an option either. To write off Apple Pay as something the big banks are doing would be a major mistake, adding to the technological edge they already enjoy thanks to their size and assets, Sloane said.
Overcoming Early Issues
While Apple Pay has clearly won over banks, the whole rollout appeared in danger of imploding late last year, at least according to one of the app’s more overwrought critics.
A survey on Black Friday showed only a small percent of shoppers with iPhone 6s actually used Apple Pay to stock up on holiday gifts. That was a particular disappointment given the reputation Apple customers have as big spenders. In the eyes of some critics, Apple Pay suddenly seemed to be heading the way of previous mobile payment flops, such as Google Wallet, Softcard and PayPal.
“Apple Pay is fizzling,” proclaimed economist David Evans, Market Platform Dynamics, on Dec. 5, “and unless it drastically changes course, Apple Pay will follow the hundreds of other attempts made around the world in the last seven years that have sputtered along at low levels of use or, much more frequently, have just flat-out died.”
Not so fast: Two months later, Apple Pay looks to be steadily gaining traction in the market, industry observers say.
At the moment, it’s not making any meaningful contribution to Apple’s bottom line. And some customers have become frustrated at the still extremely low number of retailers wired to accept Apple Pay, though the growing number includes giants like McDonald’s, Walgreens and Whole Foods, Sloane said.
But both McDonalds and Walgreens have reported a doubling in mobile payments since Apple Pay was launched, while BofA reports that 800,000 customers have signed up for the service, The Wall Street Journal reported.
Apple is also clearly in the mobile payments games for the long-term, with no sign of doing a cut and run like other short-lived innovators, the Aite Group’s Peterson said. (Apple gets a mere 15 cents for every $100 shoppers spend using Apple Pay, so this is not a get rich-quick-scheme, but rather a long-term market play.)
Roughly 220,000 stores, restaurants and other retail locations allow customers to settle up with Apple Pay, he said.
“There is no doubt that financial institutions are signing up, and they are signing up in order to be able to provide Apple Pay to their card holders,” said Tim Sloane, vice president of payments innovation at Mercator Advisory Group in Maynard.
The question now for banks across New York is not whether Apple Pay is fizzling, but rather identifying what the next mobile payment offering they’ll need to get on board with.
Mobile payments are expected to triple by 2019, to $142 billion from $52 billion last year, according to Forrester Research.
All eyes are now on Samsung, which is reportedly working on a mobile payments product that will work on Android phones, which make up just as little more than half the market. Google may be working on another mobile payment play of its own, reportedly in talks to acquire rival Softcard, which runs a rival system.
“There is a significant opportunity for someone to step in and be the Apple Pay for Android,” Peterson said.
And credit unions are likely to get their own system to offer customers – CU Wallet, which is expected to launch pilot programs over the next few months.
More than 80 credit unions across the country have already signed up, McLean said. That could provide another alternative, especially for those lenders concerned about the central role Apple has suddenly seized in the payments process.
“That will be something obviously that credit unions will consider,” McLean said. “I anticipate over time there will be multiple options for consumers to have those mobile