The Decision Maker

Apple Pay – A Heads Up for Credit Unions

Posted by Austin Wentzlaff on Sep 15, 2014 8:32:00 AM

This week Apple announced the iPhone 6 which included fingerprint authentication and a new payment service called Apple Pay. I have been keeping an eye on the emergence of the new payment technology, often referred to as the “Digital Wallet” from both a consumer and a business perspective.

Apple Pay - A Heads Up for Credit Unions

As a consumer, I have looked forward to the day when I could leave the house with just my phone to make purchases. Beyond the existence of the technology, security was my next concern. I did not want my payment information on a phone with a password that could be hacked. Hence, I was very pleased that the iPhone 6 uses fingerprint authentication and “Tokenization” for each transaction.

I am familiar with the use of tokens for network passwords where the physical token generates a random number for each logon. In a similar fashion, the iPhone 6 will generate a “Token” for each transaction. Without that token, the transaction cannot be processed. In this scenario, just having the information on the credit card is not enough; you will need to also have the token generator. From my perspective, this is much more secure than the current credit card transaction technology that relies on physical cards. I will be following the iPhone 6 feedback closely and at the point that the bugs are worked out, I look forward to making my purchase.

From a business perspective, this is another wave of change building for the retail banking industry and follows closely on the heels of mobile banking applications. Lee Shafer, a reporter for the Minneapolis Star Tribune said, “Apple won’t be the first with mobile payments, and it’s a service that few people think they need. Even so, [Gene Munster of Piper Jaffray] said Apple has figured out how to tie this service in with its other technologies in a way that gives it a great shot at being the company that actually realizes some of the long-awaited potential of mobile payments."

For mobile payments to take hold there will need to be some standards defined around the processing of the transactions plus support from some major industry players. Apple has the resources to drive the standard but there must be support from both the retail side and the payment processing side. Major retailers announcing support for Apple Pay this week included Target, Macy’s, McDonald’s, Staples, Subway, Walgreens, and Whole Foods. On the payment processing side, there was a great article by Robert McGarvey from Credit Union times this week ( in which he quotes a statement released by the $60 Billion, Navy Federal Credit Union:

“Navy Federal Credit Union is proud to be one of the first financial institutions to provide Apple Pay later this fall. With it, we'll be able to deliver on the promise of easy and secure mobile payments, and add a layer of convenience and security to using Navy Federal credit and debit cards. By combining Apple’s history of innovation with Navy Federal’s unique military membership, Apple Pay has the ability to make mobile payments more accessible for military families who rely on mobile technology in their daily lives.”

Major banks announcing their support included, Citibank, Wells Fargo and Bank of America.

“Mobile Payments” is on the way and it will be a big deal for credit unions because they are predominantly consumer driven but lack the deep pockets of the large banks. The other side of mobile payments that needs to be considered is the additional data that will be created by these transactions and how that data can be used to better serve the member base. As credit unions work on the 2015 strategic plans, these are critical issues that need to be addressed.

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Topics: Credit Unions, Payments, Digital