When the senior executives at Citizens Bank of Edmond, Oklahoma first considered signing up for Apple Pay nearly three years ago, the scenario resembled that faced by other community and mid-sized banks: lots of obstacles ahead.
Not many retailers accepted Apple Pay—or similar mobile point-of-sale services—just yet. For starters, he upfront cost was high. Nor did the bank’s payment processor didn’t have much experience in connecting to Apple. And frankly, the bank needed to focus its financial and personnel resources to other pressing issues beyond mobile payment.
“It was very costly to get started and we were only the second bank with our processor to go live,” explains Chelsea Bradshaw, the bank’s operations officer.
Still, Citizens Bank of Edmond executive believed that programs such as Apple Pay were important to the bank’s future. If it lacked them, the bank risked alienating customers ready to pay for goods via smartphone.
“Long term, we knew we needed to do this,” Bradshaw says.
Thus arises a pointed problem: While most big banks are aggressively developing strong mobile programs, few smaller banks have taken that approach. Many still lack remote deposit capture, for example—often a precursor for POS mobile apps. And that places them behind the eight ball when it comes to adopting Apple Pay and similar wallet technologies.
“If banks are not having success with mobile check deposit and mobile alert services, there’s no reason to believe that they will be successful in moving ahead with mobile POS (point of sale),” says James Van Dyke, CEO of San Francisco-based Futurion, a consulting firm that advises financial service providers on digital services.
In the case of Citizens Bank, challenges came despite a vigorous, trailblazing effort. It began an expensive and sometimes trying process in 2015 to get up and running early the following year. Then came an odd hurdle, more nagging than anything else: Apple Pay would bill the bank a one-time fee of $10,000 if there were BIN (Bank Identification Number) lots with fewer than 1,000 transactions per month.
If every Citizens Bank credit card fell within the same BIN lot, it would’ve been no big deal. But because the bank offers several affinity card programs, it separates the different types so it can track usage.
But persistence has paid off—literally. Today the Oklahoma bank has about 336 of its 4,000 issued credit cards signed up for Apple Pay. The bank expects to enter the Samsung Pay mobile payment program later this year.
While several hundred cards aren’t big numbers, Bradshaw says many of those customers want Apple or Samsung Pay capability. “We believe some customers chose their banks based on the payment products offered—and payments is very important to us,” she says.
And while some might stereotype Apple Pay users tech-savvy millennials, Bradshaw says participating customers represent a broad age range: “The average age of our bank customers is between 45 and 50 and we’re seeing older adults use mobile payment as well.”
Yet other community banks don’t share Citizens’ forward-looking approach, Van Dyke says.
“I talk with a lot of credit unions and community banks and I’m very concerned about their lack of focus on mobile banking and payments,” he says. “Because of their reactive stance, very few are achieving much success.”
Van Dyke believes that is a mistake. “Banks need to understand that mobile POS is going to be an important battleground,” he contends. “Customers using mobile apps at places such as Starbucks will expect their banks to offer the same service.”
“There is,” he concludes, “no going back.”
Despite the technical and cost challenges for community banks to get card operations online with Apple, Samsung and Android, owned by Google. But Van Dyke believes core payments processors must help by providing the banks with the needed technology and links: “The good news is that they do not have unique sets of requirements. By working together, they can get set up through their processors.”
While most core processors have mobile POS offerings—which allow their smaller bank customers to link to the major mobile networks—Van Dyke believes the processors have not done enough to push those banks into signing up for the services. And rather than ask their processors to get them involved, most banks focus requests to their processors on other technical needs.
“The processors don’t want to risk offending their clients, but their banks need to receive an apocalyptic message that they need mobile POS,” Van Dyke says.
But at least one payments processor executive disagrees with Van Dyke’s assertions. “There is a tremendous interest on the part of our clients in mobile payment,” says Dan Peacock, vice president of Product strategy for FIS Global, a large bank processor. “All the banks I’ve spoken to see mobile as critical to their operations. And we have evangelized about the benefits.”
Community banks must worry about losing customers but they also risk forfeiting “top of mind” status in electronic wallets if they fail to get in early, Peacock says. Consumers have multiple credit cards, and if one is eligible for mobile payment—and the others are not—guess which the customer will use as a “default” card that automatically pops up to make a payment?
Even if other cards join the program later, those cards may be less likely to be the “top” card used. Banks that wait until the mobile programs boom could potentially lose a lot of interchange revenue down the road.
FIS Gloabl offers a packaged program where banks can connect to Apple Pay, Samsung Pay, and Android Pay (soon to be renamed Google Pay). And it has provided banks with case studies and industry-based research to support the need for mobile payment, Peacock says. (The company does not reveal how many banks are signed up for the service.)
“Our process eliminates the barriers to connecting and is as turnkey as possible,” he says.
“We provide not only the set up, but also ongoing enrollment and marketing support,”
Still, Peacock concedes that some banks now focus more on mobile remote deposit capture (RDC) and person-to-person (P2P) programs as “stepping stones” to mobile POS—because “they are easier sales in the evolution of mobile payment. Once you get customers to use mobile phones to check their balances, deposit checks and pay bills, it will be easier to get them comfortable with using their smartphone to make a purchase”.
Meanwhile, limited acceptance by retailers—particularly smaller chains—should not stand as an excuse for banks not to join. Peacock notes that large chains are promoting mobile payments.
“At Sam’s Club, for instance, the stores scan the items and let customers pay with mobile phones,” Peacock says. “Of course, Sam’s promotes its own co-branded credit card to pay for the items.” But if a customer has a top-of-wallet card from a community bank, “it will automatically accept that.”
Now the challenge falls to convincing consumers to accept that community bankcard as part of their mobile payments lineup—and the banks themselves to accept that they must get on board the right platforms, now.
Want more Banking Strategies? Sign up for our free newsletter!
Lauri Giesen, a contributor to BAI Banking Strategies, has spent more than 25 years covering banking technology and payments for many financial publications.
Citizens Bank of Edmond CEO, Jill Castilla joined us on the BAI Banking Strategies podcast: Community banking and the drive for excellence.