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What Apple Inc. Pay Means For Banks And Payment Processors

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Apple Pay has been expanding rapidly, adding more locations in the U.S. and now moving into Canada. So does this mean Canadian banks are worried about it? And what about payment processors like Visa and MasterCard? Of course it’s still early in the game, but Apple investors are looking for the next big thing. Some analysts believe services could be very big for the iPhone maker, and Apple Pay is just one part of them.

Canadian banks aren’t worried about Apple Pay… for now

BMO Capital Markets analyst Tom MacKinnon released some comments made by management of some of Canada’s biggest banks in a report dated May 30. The nation’s Big Six banks released their second quarter earnings last week, and all of them had something to say about Apple Pay.

Cameron Fowler, who heads up BMO’s Canadian Personal & Commercial Banking Group, highlighted that ultimately customers are the ones who choose how they pay for items and emphasized that it’s their job to remain competitive. He also admitted that Apple Pay is a new competitor for them.

David Williamson, Senior Executive VP and Head of CIBC’s Retail & Business Banking Group, downplayed the competition factor, saying that the service isn’t an “economic driver” in the bank’s earnings results. He said it’s more about impact from clients and a chance in how people pay for items and events, emphasizing that it’s “not big economically at all.”

RBC President and Chief Executive Dave McKay also downplayed the threat from Apple Pay, emphasizing that their brand is strong enough to stand up to both traditional and non-traditional competitors such as Apple Pay. He also emphasized that their use of data is unique and that non-traditional competitors don’t see customers in the same way, so as a result, he doesn’t seem concerned about the new service.

Are Canadian banks not cautious enough?

In another report earlier this month, BMO Nesbitt Burns analyst Sohrab Movahedi said that although Canadian banks don’t have anything to worry about right now, they will in five to ten years from now. He said that Apple Pay’s impact on bank revenues may deepen, particularly as mobile payment adoption becomes more widespread.

Further, he sees some strategic implications to the iPhone maker getting into payments because “the top dog” in a transaction owns the relationship with the customer. However, he adds that right now it’s just too early to know how serious the implications of this will be for Canadian banks.

What about payment networks like Visa or MasterCard?

Bernstein analyst Lisa Ellis and team approached the subject of Apple Pay from its impact on Visa, MasterCard and other payment networks in a report dated May 31. They note that for now, they remain on good terms as the iPhone maker has partnered with both of them for its Pay service. Further, the company hasn’t shown signs of wanting to disrupt the payments industry, at least not yet anyway, although this could always change at some point.

After all, Apple does need to find other ways to grow its business in order to please investors, and it has the cash to disrupt the industry. Further, its payments service provides the first step, and it has a massive installed base of consumers and merchants, so it could potentially become a disruptor in payments.

However, Ellis and team don’t expect Apple to disrupt Visa and MasterCard and expects it to continue its partnership because it is mutually beneficial. As a result, they believe the iPhone maker sees the benefits of partnering with them as outweighing any benefits that could be had by disrupting them.

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