Apple Pay

Apple Pay Will ‘Chew Into’ Interchange Revenue

Payments experts examine potential impact of new payment technology.

October 1, 2014

Apple Pay

Apple Pay commands the attention of credit union executives, as evidenced by an overflow crowd at an impromptu breakout discussion about the potentially disruptive payments strategy at the joint CUNA Technology/Operations, Sales, and Service Council Conference in Las Vegas.

Two weeks after Apple’s announcement about the new product, credit union executives sought to clarify the potential impact of the new technology.

While many opportunities and challenges exist—and there are more questions than answers-the reality that Apple Pay transactions will chew into an already tenuous interchange revenue model makes most credit unions uneasy, says John Best, president of Best Innovation Group (BIG).

Apple Pay will take an “interchange shave” of 15 basis points, along with additional fees levied by Visa and MasterCard, a variety of presenters confirmed. That represents a significant dent in credit unions’ already declining interchange revenue.

“When I started looking at the numbers, your nontaxable interchange shrinks to next to nothing if not negative,” says Leah Work, business development manager, products and technology, CO-OP Financial Services. “It’s not looking good.”

Also notable: Apple has partnered with the six largest card issuers in the U.S., which represent 83% of credit card purchase volume, and a host of major retailers who will provide point-of-sale terminals.

“iTunes has 800 million accounts, and we always wondered when Apple was going to use that information,” says Caroline Willard, executive vice president of markets and strategy, CO-OP Financial Services. “Here it is. Voila!”