'It’s about the customers:' Canada's big banks defend adoption of Apple Pay

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Canada's big banks are defending their decision to introduce Apple Inc.'s payment app to their customers, even as executives label the technology giant as a competitor.

When David Williamson, head of retail and business banking at Canadian Imperial Bank of Commerce, was asked by an analyst why the bank is letting the world's most powerful consumer brand get between it and its customers, he responded that technology is forcing changes upon retail and business banking.

"What role are the banks going to play in the evolution of banking? To be successful, I think one needs to evolve and adapt as opposed to try to put up walls and barriers," Mr. Williamson said during a conference call.

Earlier this month, CIBC and Royal Bank of Canada made Apple Pay available to their credit and debit cardholders, giving them access to a payment service that lets them make small purchases valued at $100 or less using the latest versions of the iPhone and Apple Watch.

Bank of Montreal, Bank of Nova Scotia and Toronto-Dominion Bank will introduce the service to their Canadian customers in several weeks.

The moves expand the global roll-out of Apple Pay and mark a significant step toward transforming smartphones into wallets and changing the way consumers pay.

But partnering with Apple comes with risks. The technology company takes a slice of payment fees – reportedly 15 cents for every $100 transaction – potentially eroding a source of revenue for the banks.

More importantly, the relationship could achieve what the banks have long feared: It potentially gives Apple access to millions of bank customers, inserting itself as a rival financial brand at a time when younger consumers appear to be open to new names.

In calls with analysts following the release of their second-quarter results, bank executives played down these threats.

Dave McKay, RBC's CEO, stressed that trust and deep relationships with customers, spanning many financial services rather than just payments, would give banks a significant edge over competitors like Apple.

"When you think about the long-term customer relationship, the key drivers will continue to be brand and trust, which are absolutely critical," Mr. McKay said. "We have that and we would lead in that against traditional competitors, but also the challengers, the non-traditional challengers."

Executives also played down the impact on revenue generated from credit-card transactions, even though the agreement with Apple appears to surrender a slice of the banks' interchange fees.

CIBC's Mr. Williamson said that the adoption rate among consumers has been "quite strong" in the two weeks since the bank began offering Apple Pay and usage among those who downloaded the app has been "very strong."

But he noted that consumers could often use the payment service for small purchases that had been paid for with cash previously, which suggests that lost payments to Apple could be offset by more transactions.

"[Apple Pay] is something that's big as far as a development in how you pay," Mr. Williamson said. "It's big as far as the changing way that payments will be done over time. It's not really big as far as an economic driver in our results."

Cam Fowler, head of Canadian Personal and Commercial Banking at BMO, agreed that there wouldn't be much pressure on revenue. But he suggested that consumer demand for Apple Pay was the main reason behind the banks' decision to offer it.

"It's not about us, it's about the customers," Mr. Fowler said. "They're the ones who get to choose the way in which they want to make payments, and we as participants in the market don't always get to choose who will be in and who will be out."