Two credit unions here, Numerica Credit Union and Spokane Teachers Credit Union, will be among the first wave of financial institutions to partner with technology giant Apple Inc. and offer Apple Pay, a new payment platform launched Oct. 20.
Meanwhile, Spokane-based Inland Northwest Bank says it’s evaluating whether to jump on the Apple bandwagon.
It’s estimated that half of credit card fraud globally occurs in the U.S., despite the country being home to about one-fourth of all credit card transactions, largely because Americans are still using the old-fashioned swipe-and-sign system of credit cards, according to a Wall Street Journal article published earlier this year.
Security breaches are primarily what is driving the movement to offer what are intended to be more secure electronic transaction platforms, such as Apple Pay. Large U.S. financial institutions such as J.P. Morgan Chase, American Express, and Bank of America already have embraced the new platform, with their cardholders now using Apple Pay, and 500 smaller banks and credit unions currently are on a list ready to go and awaiting implementation.
Mark Fox, assistant vice president of payments for Numerica Credit Union, says Numerica is on the list of financial service providers to go live with the program, but it doesn’t have a definitive date yet from Apple as to when it can offer the service to members.
“We’re in the next group of institutions to go live, but we have no firm date from Apple yet,” Fox says.
Numerica is offering Apple Pay to its members to increase security and provide more cutting-edge options, he says. Apple Pay fits with the credit union’s strategy of providing its members with the latest technology and making their security concerns a top priority, he adds.
Fox estimates that about 66,000 Numerica members use debit cards, and about 30,000 also use credit cards.
“Being on the cutting edge fits with our services to members,” Fox says.
To fully use Apple Pay, users will need an iPhone 6 or iPhone 6 Plus with iOS 8.1 software, he says. The iPad Air 2 and the iPad Mini 3m will be able to make in-app payments only. Older iPhones won’t work, even with the 8.1 software update. Users also will need a credit card that works with Apple Pay and merchants who are on the list of participants.
Apple Pay relies on a technology that has been around for years called near-field communication, says Fox, which lets devices transfer encrypted data when they are in close proximity to one another.
When making a purchase, a device account number or token is used to process the payment, instead of the credit or debit card number. The actual card number is never shared with vendors, and only a fingerprint can authorize a payment.
Fox says because the actual credit card account number isn’t used, the card is secure and members will have less risk of losing money in data breaches.
Retailers pay a fee associated with credit card transactions and part of that fee called an interchange fee—goes to issuing banks and credit unions. With Apple Pay, Numerica and other financial institutions using the platform will pay a fee to Apple as well. Fox declines to disclose the fee.
“Our strategy is to offer services that help members live well. The interchange fee we receive will essentially remain the same. But we would also like members to say that’s why they bank at Numerica,” he says.
Fox says credit cards won’t have to be reissued, and members can use their current credit cards with Apple Pay once the platform is live.
Dan Hansen, Spokane Teachers Credit Union communications manager, estimates about half of STCU’s 130,000 members, use credit cards and of those, about 20,000 members use Apple devices.
Those numbers are based on the fact that 66,000 members have downloaded STCU’s mobile app.
STCU is ready to offer Apple Pay to members, Hansen says.
“We don’t know when it will be available to members,” he says. “All of it is on Apple’s timeline, and they do not tell us much. It’s nice to be in the first 500 though.”
He adds, “We don’t know how popular Apple Pay will be.”
Hansen says there is no upfront cost for STCU to offer Apple Pay, other than some relatively minor setup costs to credit card processors and to Visa.
“After that, STCU will share with Apple a very small amount for each transaction,” he says. “Again, those costs are very small and outweighed by the convenience of providing STCU member-owners with one more option for making payments. We won’t have to make any technological changes.”
Apple Pay isn’t the only such enhanced-security option being offered by financial institutions.
Numerica’s Fox says about 600 of its more than 100,000 members currently are using a chip or smart card—a standard-size plastic credit card that contains an embedded microchip as well as the traditional magnetic stripe so they can be used with merchants who haven’t installed the microchip card terminals yet.
The chip encrypts information to increase data security when making transactions at a chip-enabled terminal. A PIN or signature is entered to authorize transactions, Fox says.
Next year, Numerica will start rolling out its smart debit and credit cards to members, using signature cards.
“Our members, like everyone else, are more and more worried about security,” he says. “That’s why we’re giving them more options.”
Hansen says STCU will be issuing new cards over the next couple of years, but that’ss due to the transition to microchip cards—and has nothing to do with Apple Pay.
STCU announced in September it was issuing smart Visa credit cards for members who travel overseas. Those cards use what’s known as the Europay, Mastercard and Visa (EMV) standard. A microchip containing the cardholder’s information is embedded in the card and is read by the merchant’s card terminal. The information is encrypted and generates a code for each transaction, similar to the Apple Pay platform. Hansen says STCU plans to replace all members’ cards with microchip cards over the next two years.
STCU says it expects to start issuing microchip debit cards in late 2015 or early 2016. The card will be free to members, and the debit card personal identification number will remain the same, Hansen says.
STCU has seen a slight increase in income from credit card balances over the past year, but overall income from credit cards is fairly low, he says.
“Credit card income has gone from 5.5 percent of total assets to 6.3 percent of assets,” Hansen says. “And what we can say with confidence is that STCU members are above average at paying off their accounts without carrying forward a balance from month to month.”
Hansen says STCU doesn’t really promote credit card use. “We have three community development officers who go out in the community and teach at senior centers, elementary schools, high schools and other places,” he says. “We do a lot of financial education.”
STCU offers five core workshops on budgeting, becoming debt free, organizing finances, preventing fraud and identity theft, and protecting a credit score. “What’s nice is that these workshops are usually standing-room only in most classes. And you don’t have to be a member to take them,” he says.
Randy Fewel, Inland Northwest Bank’s president and CEO, says INB is moving more slowly toward the edge of technology. Fewel jokes that it likes to be on the cutting edge, rather than the bleeding edge.
“We talked about Apple Pay in a meeting just this week,” he says. “We’ll watch it, and obviously if our customers demand it, we’ll adopt it.”
He estimates that the income from credit cards accounts for only about 1 percent revenue of the bank’s revenue. He says 15 percent of INB members carry its credit card. Of those, about one-sixth carry a balance on their cards.
INB will have chips in debit and credit cards by 2015.
“It is one of the biggest shifts in the credit card industry to deal with fraud,” he says.
INB is also launching a mobile application in December, Fewel says, which can be accessed by both Android and Apple devices. “I know we’ve heard we’re one of the last ones in town to offer it. We’re not really the last, but we were not the first either,” he contends.
“All of this is very expensive. And we wait until we hear feedback from our customers in our branches before we make changes,” he says.
Fewel says INB tightened security parameters on fraud alert systems after a data breach involving Spokane wholesaler URM Stores Inc., and the credit union remains acutely aware of the need for tight security.
“We had $30,000 in losses in the URM data breach and we only had one-tenth of those losses with the Target data breach. We didn’t lose as much with the Target data breach because we already had set our parameters tightly,” he says.
Fewel says the parameters have eased back a little and they’re not as tight as before, but they’re still significant.
He says virtually all INB members have and use debit cards, and usage has increased 25 percent during the past three years.
“Our main niche is commercial lending. We do personal loans, but commercial is about 10 percent of our income,” he says.
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