Between email blasts, full-page magazine ads and website banners, big banks are promoting Apple’s Apple Pay to their customers and highlighting their cooperation with the technology giant on its mobile wallet since the service was introduced Sept. 9.
Yet those institutions will end up paying when their customers use the new system.
So why are the largest banks and card companies going to so much trouble? For one thing, the first debit or credit card you snap a photo of to add to your iPhone automatically will become the default payment option for Apple Pay when the mobile service begins in October. Card companies and financial institutions want to capitalize on that feature to build volume in transactions, which also bring them money.
“By virtue of our early participation in Apple Pay, maybe we’ll be able to pick up some more people who currently have their MasterCard as secondary in their wallet and we would like them to make it primary,” says James Anderson, head of mobile and emerging payments at MasterCard, based in Purchase, New York.
Painless for consumers
Aside from the innovative touch-to-pay experience that will let users forgo their wallets, consumers won’t likely feel much of a difference in the way they interact with their banks and card companies.
“Whether you charge your credit card or debit card to a piece of plastic or use it through Apple Pay, the costs to the consumer are identical,” says Gavin Michael, head of digital for consumer banking at JPMorgan Chase in New York.
Other banks take a similar approach.
“Wells Fargo does not charge a fee for its customers to use Apple Pay,” says spokeswoman Natalie M. Brown.
Banks charged
Banks will foot the bill for using Apple Pay by giving Apple a percentage of every transaction made through the system, according to Bloomberg News. It remains to be seen whether banks will pass on any of that cost to merchants and consumers. Merchants normally pay banks and card issuers a small percentage of each transaction charged on a credit card or made with a debit card, though that usually has no effect on consumers or what they pay.
Apple has made deals with the largest U.S. financial institutions, including Bank of America, Capital One Bank, Chase, Citigroup and Wells Fargo. These organizations account for 83% of the credit card purchase volume in the U.S., according to Apple. Customers of community banks or credit unions will likely be able to use Apple Pay too, but most of those institutions haven’t announced any plans to participate.
“If [merchants] buy into this type of payment system and we have a demand from our members to offer this, then we will,” Steven Page, online product marketing manager for 1st United Services Credit Union in Pleasanton, California, said by email.
Smaller banks face barriers
However, cost and accessibility are two barriers keeping smaller financial institutions from offering links to the new service right away.
“It is a very expensive option to take, costing 15 basis points [0.15%] per transaction to use the Apple Pay option,” Page says, referring to the amount Apple collects.
First Data, a credit card processor often used by smaller banks, has said it will participate in Apple Pay, which means those banks can offer the service to depositors. However, other institutions are unsure how to provide it to customers.
“There’s not a help line for banks,” says Jill Castilla, president and chief executive of Citizens Bank of Edmond in Oklahoma. “There’s not an invitation out there for how to get involved and how to connect with Apple.”
Still, she says her community bank is just as eager as its mega counterparts to offer Apple Pay to depositors.
“As long as it’s safe and sound, and if it becomes accessible to community banks, we would be one of the first ones to embrace it,” Castilla says.
So now you know why your bank has been shouting out about Apple Pay.
Card image via Shutterstock
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