Running A Business

The Implications of Apple Pay for Small Business

Oct 01, 2014 • 10 min read
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      Listen to our interview with Randy Hopper and Jim Salmon of Navy Federal Credit Union

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      Apple and Apple Pay made a big splash in an announcement a few days ago. As one of the first financial institutions to embrace the technology and jump in with both feet, Randy Hopper and Jim Salmon are the perfect guys to talk with us about the impact this will have in the small business community.

      Check out this week’s podcast to find out how they think this will change the way small business does business and what the future is for credit cards.

      Information you need, the podcasts you trust, this is the podcast network.  Bringing you interviews with top business professionals and business financing tips to fuel your American dream.  This is The Business Fuel Podcast heard exclusively on  And now, here are your hosts, Ty Kiisel and Patrick Wiscombe.

      Sponsorship:  This podcast is sponsored by  The online source you need to find the right business financing to grow your company.  Check them out for free at to get your business growing right now.

      Patrick Wiscombe:  Serving over 375,000 listeners each month, this is The Business Fuel Podcast.  Good morning, I’m Patrick Wiscombe.  Thank you for tuning us in and taking us along wherever and however you’re accessing the podcast today.  Coming up we’re going to talk about Apple Pay.  I think it’s an exciting initiative and it will make Apple a ton of money in the months and years to come.  But more importantly, I’m excited to get rid of my wallet.

      Ty Kiisel:  Yes.  This will have a big impact on small business.  That’s why I’m excited to have Jim and Randy from Navy Federal Credit Union on today.  They’re one of the first financial institutions to embrace this technology.

      Patrick Wiscombe:  Before we talk to them, what is your Forbes article about this week Ty?

      Ty Kiisel:  I’m a fan of the SBA.  I think they’re doing a lot of good things, particularly Maria Contreras Sweet.  She was talking about alternative lending and how it’s going to change the face of small business lending.  So that’s what I talk about.

      Patrick:  You can read all Ty’s stuff on  Just do a search on his name, Ty Kiisel, in the upper right hand corner of the website.  Ok, let’s get to this week’s guests.   Randy Hopper is the VP of Credit Cards at Navy Federal Credit Union.  And Jim Salmon is the VP of Business Services.

      Ty Kiisel:  I’m the geezer of the group, and I’m willing to admit that.  We hear a lot about Apple Pay.  Is it really the big deal they say it is?  Is it really going to change the way we use credit as consumers and the way business owners interact with us that way?

      Randy Hopper:  I think the biggest game changer is the fact that they involved a lot of traditional payments ecosystem players.  A lot of the disruption we’ve seen lately is from those who try to get around the traditional payment systems.  Whereas with Apple Pay, it involves the networks, processors, and large credit and debit card issuers.  That’s really the game changing component.

      Ty:  When Jim and I were talking about this earlier in the week, we were talking about Smart Cards.  Is that technology and Apple Pay technology related somehow?

      Randy Hopper:  They’re related in the sense that they both make the payment ecosystem more secure from an issuer perspective.  Security is always top of mind.  Both have very strong security features relative to the existing mag stripe.   For small business owners, chip cards are really the more pressing payment instrument of today.  The fraud liability will be shifting in October 2015.  That’s not a mandate, but it’s a push to get more chip card technology into the market.

      Jim Salmon:  To build on what Randy said, in the coming year, a lot of small business owners will be faced with switching out their merchant card solutions and upgrading to be able to accept these new cards.  At the same time, they will need to decide if they want to incorporate a solution like Apple Pay.

      Ty:  And that will happen this time next year?

      Randy:  That’s correct, for EMV chip cards.  Small business owners should consider if their terminal will accept EMV and NFC, which is Near Field Communication Technology.  That’s what supports Apple Pay.  The key is understanding what the terminals are capable of.

      Patrick:  How does that affect companies like Square?  Is this going to have a significant impact on their business?

      Jim:  Navy Federal does have a relationship with Square and we do work closely with them.  They are working on updating their device that will be able to accept a card with the chip in it.  It is in motion and they will be a part of it.  One attraction of Square is the simplicity of it.   They keep their terms and conditions very simple.  They don’t require a contract.  A lot of our members who are start ups have gravitated to that because their business ebbs and flows, it’s not consistent.  That being the case, a solution like Square works very well for them.

      Patrick:  So I’m hearing you say you will be pro-actively contacting your customers to let them know change is coming and they need new hardware.

      Jim:  We have a dedicated team who is having those conversations and letting customers know the technology is changing.  The risk is also changing, especially next fall, and they need to be aware of it.

      Patrick:  Does it take a company like Apple to drive this kind of market change?

      Randy:  For Apple Pay, and the way Apple is approaching it, it helps that they have a large share of devices in the market.  Every movement they make is watched closely by Wall Street and the business community.  The key is their decision to include some of the traditional payment players into this solution.

      Ty:  The big comment among my colleagues in the office today was that they are really looking forward to not carrying a wallet anymore.  Do you think, with younger consumers especially, that small business owners will feel they have to embrace this technology or they will lose business?

      Randy:  I think Apple Pay will be more popular when the iPhone 6 becomes more common and people become more familiar with how it works.  It is a slightly different behavior from a payment perspective.  220,000 out of 8 million terminals in the US today support NFC.  That’s not a big number; less than 5%.   It’s going to take time for terminals to be available and for it to be a day to day part of the payment experience.  There’s time for small businesses to digest all the payment changes.   But it’s something to consider and be aware of.

      Jim:  Small business owners are also going to have to go through the evaluation of, “What do my customers want?  How do they behave?  What are they gravitating towards?”   They’re going to have to be very mindful of that.  They might strategically gravitate to this to differentiate themselves, at least locally.   We do know that consumers are going to start getting cards with the EMV chips in the next cycle when they need to get their cards replaced.

      Ty:  The smart cards have been in Europe for years.  That technology is pretty proven.  Jim mentioned earlier that next year there is a risk associated with making or not making the change of hardware.  Let’s talk specifically about that.

      Jim:  If you do not switch over, you could be liable for the chargebacks and fraud that might occur at your place of business.

      Randy:  At the point of sale, when there is a fraudulent transaction, the chargeback liability is going to fall on the participant that either does not support EMV or if both support EMV, it will go back to the issuer.  But the goal of EMV is to reduce counterfeit fraud.  If a business is faced with customers coming in with chip cards and they don’t support chip cards, after October 2015, any fraud that occurs at their store, they will be liable for.  Whereas today, the issuer is liable for that.

      Ty:  What exactly is Apple and the credit card industry doing to make sure this technology is safer?

      Randy: The key is that there is really no perfect solution to security.  But we can introduce effective layers that reduce the value of the data.  In the US today, we are seeing an increase in the instances of counterfeit fraud.  That’s when someone gets the information when you swipe your mag stripe and they create more cards that look just like your card.  A chip prevents that.  You can not duplicate the chip on a card.   In the UK, they saw counterfeit fraud go down to almost zero when they introduced chip cards.   The best part about Apple Pay is that the account holders number is not on the device and it is never passed through the transaction.  It works through what is called payment tokens.  When a cardholder enters their card into Apple Pay, the number goes to the payment networks.  The card number never goes back to the phone.  What goes back is a device number or token.  That token is held at the networks which is then mapped back to the financial account numbers.  So the issuer knows that token is associated with this account.  The token is only good on that one device.  It takes the financial account number out of the equation.  It uses device specific account numbers which can not be duplicated.

      Patrick:  Did you approach Apple, or did Apple approach you to become part of Apple Pay?

      Randy:  Apple approached Navy Federal to be a participant in Apple Pay.  We were thrilled because of how convenient, secure and private it is.  They approached us because member experience is always on our mind.  That was something that resonated with them.  We are one of the first 11 issuers to offer it.

      Ty:  I think if it’s safer for consumers, it’s huge.  And the shift in liability makes it important for small business owners to get on board, right?

      Jim:  Absolutely.

      Ty:  Otherwise, you as the issuer assume all the risk for fraudulent charges.  What would be the motivation for small business owners to adopt the new hardware?

      Jim:  It would go back to what their customers are using.  If you’re not set up for Apple Pay and you’re turning customers away, you’re going to go out of business.  Likewise, I think it would only take a couple of chargebacks to get an owners notice.  It is a little bit of a behavioral change that’s going to happen.   Correct me if I’m wrong Randy, but I think you have to leave your card in the machine while the transaction occurs.  No more swiping.   And with the phone, you have to tap it.  We’re not used to doing that.  There’s going to be some behavioral modification on both sides of the transaction.

      Randy:  Apple recognized that it had to be easier than using a card; and it really is.  The phone is ready to go and you just authenticate with the fingerprint and you’re ready to go.  It’s that simple.

      Ty:  How long do you think it will be before credit card companies don’t issue cards?

      Randy:  That’s something we’ve really thought about.  I think in the next 24 months, you will see on applications the choice to not issue plastic.  Plastics won’t go away.  But issuing plastic at the time of application will be optional.

      Ty:  10 years ago, I didn’t think the home phone was going away.  It’s going away.

      Jim:  With the advent of credit and debit cards, some thought checks would go away.  But they’re still holding on.  A lot of folks still use them.  Not as many as their used to be, but they’re still out there.  Small businesses are going to have to be versatile and accept multiple forms of payment.  Fortunately we’re getting away from cash and checks and those means to transact.  And hopefully replacing it with EMV cards and Apple Pay.

      Patrick:  Is this a good thing that everything is basically electronic?

      Randy:  From a financial institute perspective, we are very supportive of the electronification of payments.  In the last 50 years, think how much easier electronic payment has made life.   With the right controls and security in place, a cashless society can be very productive and accelerate commerce.

      Jim:  From a small business perspective, it has been a benefit because there is a cost to handling cash.  From a growth perspective, it is easier to accept credit card payments and these non-traditional forms of payment.  Customers might be willing to spend more.  They don’t have $25 cash in their pocket, but they know they have enough in their bank account.  They will make the bigger purchase.

      Ty:  It sounds like things are changing, and they are changing fast.

      Jim:  Absolutely.

      Patrick:  We will go ahead and wrap up this weeks edition of The Business Fuel Podcast.  As a reminder, you can pick up the podcast every Tuesday at  If you want to get the latest episode delivered straight to your device, go into iTunes and do a podcast search for Lendio.  Jim Salmon and Randy Hopper with Navy Federal Credit Union, thank you for being our guests today.

      Jim:  You’re welcome.

      Randy:  It was a pleasure.

      Patrick:  So for Jim, Randy, and Ty Kiisel, I’m Patrick Wiscombe.  Thank you for listening.  We’ll talk to you again next week.
      Bringing you interviews with top business professionals and business financing tips to help fuel your American dream.  This has been the Business Fuel podcast, with your hosts, Ty Kiisel and Patrick Wiscombe, heard exclusively on

      About the author
      Ty Kiisel

      Small business evangelist and veteran of over 30 years in the trenches of Main Street business, Ty makes small business financing and trends accessible in common sense language devoid of the jargon.

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