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Apple Pay is a Losing Proposition for Midsize Banks

October.28.2014 0 Comments


Midsize banks are losing money on Apple Pay transactions, and the marketing value of their “partnership” with Apple is questionable. They will still participate, however, because they have to.

So says Doug Brown, who leads the mobile strategy and product team at FIS. His arguments run fairly neatly in opposition to those expressed to Bank Innovation yesterday by Tommy Marshall of Capco.

Brown questioned the marketing value of the banks’ participation because “they’re aggregated in there with the other banks,” reducing the visibility of the partnership. He did acknowledge there was short-term buzz and that banks are right to capitalize on this as far as possible, primarily with existing customers. The big banks, some of which show up in Apple’s own materials, will get a boost, but otherwise there’s not much there for the banks, just those surrendered basis points.

Regarding Apple’s agreements with banks, Brown believes the deals signed were generally on three-year terms. “The first six [banks] maybe had different terms, but for midsize banks on down, you don’t redline with Apple.” Banks will sign onto Apple’s tokenization agreement because they have little choice. “Apple Pay is top of mind at the banks from board level on down,” Brown said. “Apple addresses 40% of the market. There’s the other 60% to think about.”

To address the other 60%, banks should get their strategy in line for Android phones and Google Wallet, accommodating merchants signed onto the MCX mobile wallet, and consider, as the larger players are, launching a bank-branded mobile wallet. Banks, after all, can provide ancillary value around the simple payment vehicle, as Apple is not.

For 2015, Brown said, banks should look to expand their mobile offerings to include personalization and context for customers. Moven and Simple, for example, offer feedback on purchases and let customers know what is safe to spend based on their budgets. Two other priorities for 2015 are live video interactions, and bringing tablets and the like to enhance the branch experience. One of FIS’s own major initiatives is the cardless cash function at ATMs, wherein users can pre-authorize withdrawals and show up and get their money without inserting a card and entering a PIN.

Brown acknowledges Apple has done a solid job combining security, with its TouchID authentication, with ease of use, or lack of friction. But he believes Apple may not be entirely above-board in its talk about data. Apple’s Spotlight tool, for example, which looks at a user’s context to make suggestions, is ripe for iAd integration. In concert with Apple Pay, this could make for a powerful ad platform, or for a loyalty program such as the one is Apple is rumored to be launching later this year. “Loyalty is the next frontier,” Brown said.