Mortgages in the Apple Pay era

Jan 21st, 2015 | By FCT

What will a change in customer expectations mean for the mortgage industry?

Sometimes you overlook the next big thing for the bright shiny object.

Even as smart watches and wearable technology wins lots of press, Apple Pay, as game-changing technology, is already quietly changing how we human beings move money around.  Tim Horton’s and Subway have deployed the transaction service in select locations—you can watch a brief YouTube showing just how simple this new smartphone service is here.

Apple’s renowned for its gadgets, but the real revolutions the company has sparked changed entire ecosystems—and this one will change the mortgage business in ways that are far from clear yet.

But you’d be nuts not to think through the implications and opportunities for your business.


Think about it: Apple’s changed more lives (and made far more money) through utterly demolishing the entertainment industry’s business model with iTunes.

Music, pay TV, films, podcasts, even university courses—they’ve all be changed by iTunes.  Add iTunes on mobile smartphones and you change an entire culture.

You change people’s expectations, the essence of any revolution.

Well, that’s about to happen to banking transactions. Your banking is already on your smartphone, but now your phone’s ready to become your transaction card.

As we all know, credit card companies earn very juicy margins indeed, upwards of 35% for the big brand cards. Apple has singled out the credit card industry as its next target; with mortgages as most people’s single biggest lifetime transaction, what does the future look like for the mortgage industry when (not if) Apple Pay changes the game? (Not least if Apple’s competitors—Amazon, Google, Facebook—weigh in with services of their own.)

Here’s some context: across the country, slowly at first, but reaching critical mass by 2017, Bloomberg predicts, Canadians are increasingly using their smartphones to access their bank accounts, archive healthcare records and workout performance data, and even deposit cheques.

And buy things, simply by pushing a button on your smartphone, with the touch of your fingerprint on your smartphone’s built-in scanner as you hold your iPhone at your favourite store’s cash register.

The technology is eerily simple: instead of transferring your personal data, Apple Pay transmits a string of code called a token, worthless to hackers. It’s dead secure and potentially ubiquitous.

Everywhere. If it’s everywhere, that’s a massive change in consumer behaviors and perceptions regarding their finances.

Think for a second: what if Apple Pay replaced credit cards altogether? In the US, according to Bloomberg, Visa and MasterCard processed some 64 billion purchase transactions in 2014, over $3.3 trillion in dollar volume, an immense figure. And that’s just the US.

And the service “swipe fees,” you ask? About US$40 billion annually, even as a micro fee. And that’s just the beginning.

So what happens to the mortgage industry with this revolution in simplicity that threatens to ‘dis-intermediate’ the big credit card companies? Well, Forrester Research, the online data analysis people, reckon that mobile payments in the US and Canada are going to quadruple in the next two years, to something like US$110 billion annually. Here’s a look at just how fast financial institutions are signing on.

If potential clients are moving their financial lives to their phones, the impetus to radically change how mortgages are transacted is irresistible, not to mention this technology’s a given for emerging first-time mortgage customers. This is way bigger than just a coffee at Starbuck’s.

Investment bank JP Morgan’s digital chief predicts that “we’ve seen—certainly in our customer base—a drive to the mobile channel. The timing is right with customer behavior, the customer experience is right, and elements have come together around how the ecosystem is evolving for (the mobile channel) to be a game-changer.”

The headline for the Canadian mortgage industry is coming into focus: mobile will change the transaction, for certain.

Sure, it’s early days yet. How Apple Pay and its future competitors (how will Facebook and Google respond? Amazon?) will change expectations around the mortgage service relationship is still an open question.

But the mortgage industry would do well to consider what iTunes did to the music industry over the past decade, simply by changing the game. For a really solid deep dive into what Apple Pay, its prospects and its competitors’ responses mean to your business, read more here; there’s a link to an important UBS white paper on mobile transactions as well.

Categories: EXPERT/ease, Mortgage

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