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How to beat death by a thousand cuts?
As I’ve indicated in some of my recent blogs (recent being relative), I don’t believe our industry is in danger of over-night disruption. I do, however, continue to believe that unless we evolve, it will be death by a thousand cuts.
The latest potential cut is another from Apple.
When Apple first unveiled ApplePay several years ago, I said that this was just the first step in their attempt to separate credit unions from their members. Just the first cut.
Another cut will be coming very, very soon. It’s already available to members if they install beta versions of iOS. And before long it will be available to anyone with an Apple account.
This new feature is nothing more than the built-in ability to send money via Apple’s messaging app. Basically, you can load money onto your Apple account (whether that’s an iTunes account, or iCloud account hardly matters; they’re all converging into a single Apple account), and then send money to someone else with an Apple account.
The good news is that you must load money into the Apple account from an existing source of funds, such as from a credit union checking account via a debit card. You can also load funds directly from a credit card, although there is a 3% fee for that one.
Well, you may say that this is no big deal. In fact, it’s very similar to services such as Venmo or even Paypal. And, in fact, there's an opportunity to earn interchange income if the Apple customer is using your card. The only difference between this and Venmo or PayPal is that this time it’s baked into Apple’s product.
I would agree with that assessment--this is just one more product similar to what we're already seeing. But the problem isn’t that you can load and transfer money with your Apple account. The problem is that this is just another step. Another cut. You see, eventually this will end up with Apple being someone’s primary account instead of your credit union.
Don’t think it can happen? Here is a possible scenario. And to me, this is looknig more and more likely every year.
During the next few years, your members become accustomed to loading money into their Apple account via their debit card. They send money and receive money on a regular basis. And, in fact, they may begin by moving that money back into or straight out of their credit union checking account. It’s easy. It’s seamless. They get very comfortable with money moving in and out of this Apple account.
After a while—perhaps after an update from Apple that changes the default setting of moving money back into an account; instead, that feature has to be manually turned on by members—money begins to accumulate in the member’s Apple account. Or, the member realizes that instead of moving money in and out of the checking account, it’s more useful to just leave money in the Apple account.
At this point, we basically have a small transaction account, where people leave a little money for some basic online transactions. No big deal. PayPal has been doing this for years. Square. Venmo. They’re all doing it. Money is sitting in these uninsured accounts.
Right. Just one more little cut.
And then, at some point down the line, people can use their Apple account on other websites (like PayPal; it just becomes another option when you check out). Then, at grocery store check-out, they can have their Apple account be the default payment on ApplePay. Maybe—it’s not that hard to imagine—Apple allows people to deposit their paycheck directly into their Apple account.
And at this point, the credit union is cut completely out of the interchange and deposit loop. It didn’t happen all at once, it happened incrementally. A cut here. A cut there. And suddenly, the credit union that hasn’t been watching things is out of the loop—for both deposits and interchange.
How do you beat this? How do you fight the Apple juggernaut? I have a few thoughts, but nothing that's not obvious. In the end, it boils down to the usual benefits of using the credit union.
- Help them make money: look for ways to incentivize members to keep their money flowing into and out of their account at your credit union. What can you do to make sure every time they send or receive money via Apple Pay (or PayPal, or Venmo, for that matter), it’s leaving or entering your account?
- Help them save time: convince members that having all of their money at one place--all transactions moving in and out of the same account--is better because it makes keeping track of finances easier. They may have to do some work at the outset to make sure money flows directly through their Apple (or Venmo or PayPal) account into yours, but in the end they save time because they only have to look at one place to see all their transactions.
Ultimately, to avoid the death by a thousand cuts, credit unions must start taking action now. Sure, sure. Right now Apple Pay is barely a blip on the payments radar. But it's building steam. At some stage it will reach a tipping point. When it does, credit unions that have not been proactive in fighting it off will likely act like the industry was suddenly disrupted. But it won't have been. Those credit unions will have been dying a death by a thousand cuts, and pretending it wasn't even happening.