Apple Pay made a big splash when it arrived in late 2014, but has made few ripples since then, as consumers stuck to their old payment habits and banks in international markets proved reluctant to provide their support.
One of Apple's earliest U.S. partners, Union Bank & Trust Co. in Lincoln, Neb., has decided that it's time to take back the reins of its mobile strategy.
"Apple Pay works well, but it has been slow with merchants because of the cost and concerns over how to retool to accept the service," said Alan Fosler, a senior vice president at the $3.2 billion-asset bank.
The institution has joined a bank-branded mobile wallet project with Prairie Cloudware, a digital payments technology company based in Omaha, Neb. The initiative, which doesn't have a specific timetable, is integrating a Prairie product called Digital Payments Guardian and the bank's Fiserv Premier-driven core processing platform.
"We believe that with Prairie Cloudware we can move the mobile wallet to a status where it's widely accepted by merchants," Fosler said.
Union's complaints about Apple Pay are not unusual. While it has a slick user experience, it's too inflexible in opening its tech to other developers, it's expensive and it doesn't give banks much control over their approach to the mobile wallet, critics say. Several large banks have the power and resources both to build their own branded wallet and push Apple for concessions.
To be clear, Union is not ditching Apple Pay – it is an example of a community bank that has found a way to open up its options as mobile wallets evolve.
One of the main sticking points about Apple Pay for banks is the "top of wallet" position. Apple Pay defaults to the first card customers enroll, leaving banks without a lot of control over how their brand is presented. Union will use Digital Payments Guardian to support its mobile wallet for Android users, positioning its bank-issued Visa cards as a "top of wallet" option.
Banks are most concerned about being "top of wallet" in third-party digital wallets, said Zil Bareisis, a senior analyst at Celent.
"The implications of branding and loss of control are other important concerns," Bareisis said.
Apple controls how its devices use Near Field Communication, making Apple Pay the only NFC wallet on its platform. But Android supports a technology called host card emulation, which enables any developer to create a contactless mobile wallet without needing to access the handset's secure element.
"Android and host card emulation give the banks more control and opportunity to offer their own branded solutions to the market," Bareisis said. "Working with specialist vendors in this space can help manage the costs and complexity."
Prairie's Digital Payments Guardian will act as a vault, enabling storage for credit, debit, store-branded and gift cards. The technology will be delivered as Web-based and hosted software-as-a-service, which is designed to speed time to market and control deployment costs. Mobile payments now fit a retailer's technology strategy due to the combination of existing merchant relationships, EMV-driven upgrades to contactless acceptance, and the cloud-delivered technology for mobile payments and tokenization, Fosler said.
"With Prairie Cloudware, the merchant doesn't have to change anything they are doing, they don't have to retool and invest a lot to accept" Union's wallet, Fosler said.
By contrast, Apple Pay debuted a full year before the card networks' October 2015 deadline for EMV acceptance, which served as a catalyst for terminal upgrades. The current environment is much more welcoming than that faced by earlier mobile wallets, including Softcard and Google's original Google Wallet, both of which were discontinued (the Google Wallet brand lives on as a P-to-P app).
"First the telcos tried the mobile wallet and it didn't work. Now the tech companies are taking their stab at it," said Doug Parr, chief revenue officer of Prairie. "But until you satisfy two of the three parties – the consumer, merchant or the bank – it's going to be hard."
As the original owners of the payments relationship, banks are better positioned than companies outside of financial services to lure merchants and consumers to mobile payments, according to Parr. "What underpinned debit and credit cards originally is the trust in banks," he said.
But there's also a battle within the banking industry to add mobile payments as a feature of existing mobile banking apps.
Most of the early bank-led mobile wallets have involved large institutions or credit union collaborations. As is the case with a lot of bank technology trends, regional and community banks are challenged to do more with less, which is where Prairie sees an opportunity for its offering. Once the Union project is done, the vendor hopes to serve a market for community bank-branded mobile wallets.
"Bank branded wallets should not just be limited to banks with a thousand people on IT staff and an eight-figure budget," Parr said.
The project between Union and Prairie still has limitations, most notably that it can work only on Android smartphones.
"The iOS question is an interesting one. Apple has yet to open access to its [NFC ecosystem] to third parties," Parr said.
But there is hope, if Apple's approach to Touch ID is any precedent. When it was introduced, Apple's fingerprint reader was closed off to third-party developers. That changed, but not quickly. "Touch ID took over 18 months to open up to developers like Prairie Cloudware," Parr said.
The emergence of the bank branded mobile wallet is going to be one of the big considerations for the next year, according to Thad Peterson, a senior analyst at Aite Group.
"The benefit for the bank is it more closely links the payment function with their online banking capability and lessens the risk of defection," Peterson said, adding consumers can automatically provision the wallet with the bank's payment product, simplifying onboarding when compared to loading cards into an operating system or device-based wallet. "The possible downside is the user experience at the point of purchase. The bank needs to look at the elegance of Apple's solution and strive to get as close to that as they can."
The business case for small banks to offer a proprietary wallet is questionable, however, Peterson said.
"It's more work and the potential return when compared to the value delivered by an operating system or device based wallet is probably fairly low," he said. He added that the bank's brand is preserved in the card with device and operating system wallets, which is displayed at the time of transaction – and the user experience is good. "It will be hard for a small bank to beat that with their own offering."