Here’s how Apple Card and Apple Pay Cash can pave the way for Apple to be a micro bank
Apple finally makes its move into financial services, tech companies becoming banks, is something often speculated and feared by many. On a glance, the pitch for a credit card with no hidden fees and daily cashback, without doubt, is captivating. However, buying or owning an iPhone doesn’t qualify one for a pre-approved and no condition credit card. To get the Apple Card, one has to apply and go through a credit card approval process as you would with any other bank but may be in a simple and faster way. Apple’s other announcements signal to the change in their strategy to move to Apple devices based services to boost sales, generate new revenue channels and give more reasons to buy Apple devices. It’s quite evident that Apple Card with its cash back benefits is a way to lock the user in its walled garden and eliminate anything that might come their way to make potential Apple purchases.
The presentation of all the financial transactions in the app is simple and intuitive, and the assurance on privacy, security and customer support through Messages are quite interesting features too. However, the credit card experts are not entirely impressed with the cashback benefits that Apple offers. Apple Card stacks up to be an average credit card in comparison to other rival credit cards in the US such as by Amazon and Uber, who offer much higher cash back and other benefits at no additional fees. The highest cashback 3% is only available on the purchase of Apple products and services. The unlimited 2% cash back is only available on all purchases but only through Apple Pay. The premium and iconic looking credit card ever created, Apple’s titanium physical credit card offers only 1% cashback on all purchases. This might also be a behavioral nudge to the customers to use the iPhone to make payments than the card. Even with no late fees and hidden fees, Apple Card is still less exciting given the premium it charges its users in so many ways.
Apple Card in Canada
Currently, Apple Card is limited to the US, but it shouldn’t take too long to hit the Canadian border if there are no complex regulatory challenges to counter. If Apple launches in its credit card in Canada, then how does it rank against the Canadian players?
1. Cashback with no annual fee: US has more credit card options that offer 2% cashback whereas in Canada there are only few credit cards with more than 1% cash back on all purchases at no annual fee. Tangerine’s credit card offers 2% on three categories, Rogers World Elite MasterCard offers 1.75%, and American Express SimplyCash card offers 1.25% on all purchases with no ‘Hidden’ fees, no matter whether you use it through a mobile wallet or physical card. Apple is known for setting new behaviors and expectations, and its entry into the Canadian credit card market might force credit card companies to offer 2% cashback on all no-fee credit cards or at least on popular purchase categories. If customers prefer daily cash back over other types of rewards such as travel points, (instant gratification vs benefit realization after a longer period) then customers may leave their existing credit card move to Apple Card.
2. No foreign transaction fee: Free foreign currency transaction benefit mostly exists with premium credit cards, but Stack, the prepaid MasterCard, allows foreign transaction online and offline at no additional fees and currency conversion happens at the mid-market rate. Apple, however, doesn’t provide details on the rate at which it will do the currency conversion because the conversion factor it chooses could include the transaction fee, which it claims not to exist through its credit card.
3. Spend Tracking: Most of the Canadian bank apps today offers features that give a decent breakdown on your spendings and categories them for tracking purposes. Mint is the best among all third-party spend tracking apps and integrates with almost all banks. Apple has done a great job at visualizing the information for the user, but it’s not something that other players can’t offer to their customers. Spend tracker is not really ground breaking to be a competitive advantage for Apple.
Overall, the Apple Card is an average credit card with some unique service experiences for the customers and a smart business model where Apple saves lot of processing fees for itself by being the merchant and the card issuer. But is Apple setting up a future in financial services with its credit card?
Plausible futures for Apple in financial services
Apple has claimed that it will not be using or sharing customers transaction-related information for commercial, marketing, or advertising purposes but Apple might still have access to the information of its customer’s credit card usage to develop new financial products and services. And there is no reason for Apple to stop at a basic cash back rewards credit card. Considering how some of the non-financial institutions such as Alibaba and Paytm have come up with innovative financial products and services, it’s hard to rule out that Apple will not embark on a similar path, create communities around its services and be a micro bank to cater different lifestyle needs of its customers. Here are three financial products and services Apple could likely create leveraging the reach of its credit card and its partners:
1. Interest-based daily transaction account: Apple Card users have the option to receive the cashback as actual cash in their Apple Pay Cash in the wallet or as credit in their Apple Card. Ending support to fund person to person payments with credit cards is an indication that it is a deliberate move to encourage customers to load money to Apple Pay Cash to pay for Apple services and credit card bill. Using Apple Pay Cash to make payments also means Apple is not incurring any cost to process payments and the cash is just getting circulated within its system. Use of Apple Pay Cash as of today is limited to peer to peer transfer. Securing it with MasterCard could transform the mobile wallet into a prepaid card with debit card features. Customers get to use the convenience of Apple Pay through their loaded Apple Pay Cash card when they have exhausted their credit card limit. Further, it could leverage the partnership with Goldman Sachs to start something similar to Payments Bank in India to encourage users to store money in Apple Pay Cash for daily transactions and also earn interest on it. Apple Pay Cash and Apple Card combo could enable Apple to be a micro bank that is exclusive to its customers
2. Consumer Financing: Apple has stopped offering consumer financing option in Canada while it still offers in the US through Barclay’s credit card. Now that it has it’s own credit card along with the information on the creditworthiness of its users, it’s devices are getting pricier, and there are a host of new services, it can now offer lucrative financing options to its customers. There have been reports on Apple working on cheaper financing plans through Goldman Sachs. If Apple decides not to limit its services to the sale of its devices, it can extend the financing services to other short term needs of its customers such as IKEA purchases, travel, etc. in the form of microloans. Credit history with Apple paves the way for the customer to apply for small amount loans from Apple to fund their short term needs.
3. Micro-insurance: Insurance industry has been observing that the young generation is moving away from the purchase of traditional insurance products as the way they perceive risk and loss is different from the previous generation. Apple Care is a kind of insurance service but limited to its devices. Apple in partnership with insure-tech startups to offer on-demand micro insurances for risks that matter the most to its customers and cover a range of non-Apple products. Given Apple’s interest in the health sector and the enormous amount of health-related information it captures, it could offer personalized health insurance bundled with its credit card. Other types of small insurance coverage such as travel coverage that comes with the credit card and often ignored, forgotten or undervalued can be made into interesting credit card benefits.
Payment related capabilities and mobile wallets have been the backbone of several disruptors including Amazon and Alibaba, and Apple is at developing the same with its credit card venture. It doesn’t need to become a full-blown bank and customer too may not go to Apple for a house loan. It has always been best at re-engineering experiences, from smartphone to music storage to credit card. Apple can reimagine how the short term financial needs of its customers can be catered. Micro-finance was conceptualized for financial inclusion and to support people with no access to banks for financial stability, but it can be leveraged to imagine new products and services for the daily financial needs of the citizens of the digital world. Apple Card and Apple Pay Cash can act as channels to deliver micro banking services.