5 min read

Apple: biting into the banking battlefield

David M. Brear

Oh shit, they finally did it. Apple moved into banking. Sort of.

They’ve been looming over the banking battlefield for over a decade now but with their recent announcement regarding Apple Pay conducting more transactions than PayPal, and now the reveal of the Apple Card, they might finally be living up to the hype.

What's fascinating is they're launching into a fiercely competitive sector of the market. It explains why initial comments focused on the slightly underwhelming rewards compared to offerings from the likes of Citi, Chase and Capital One.

So what about the other elements?

Instant cards...well, sure but they exist. Is a challenger bank-style display cutting-edge? The interest rate slider and payment schedules are helpful. Using Apple Maps to geolocate and tag purchases with store names and categories is useful.

Neat. But not revolutionary, as Jason Bates and I discussed in greater detail during FIN OnAir Ep 11 “How’d you like them Apples, Banks”.

So the card looks great. The app from what we’ve seen so far looks good. The underlying product is so-so.

So why am I hyped on it despite that?

Nothing to do with the rewards

We often talk about the Minimal Loveable Product, but this feels like far more.

While on the surface this has all the hallmarks of a traditional white-labelled card in which a big bank (in this case Goldman Sachs) deals with all the boring stuff like regulation and risk and the non-FS brand takes on the marketing and distribution side, it's much deeper than that.

Goldman Sachs has successfully entered the retail market with Marcus, but in partnering with Apple they don’t have an existing business that they’re cannibalising, and Goldman gets to compete with Citi, Chase, and the others without being the lead brand. Wins all round.

Apple have used their ability to control both the hardware and software in their handsets to do something very different moving forwards. They have the capability to compete in one swoop with not only credit card companies, but with challenger and incumbent banks, loyalty programmes, and P2P firms in the US such as Venmo.

They have entered a market famed for its predatory approaches, removed the fees, and launched with functionality to help people manage debt. Retaining this customer goodwill is going to be hugely important for Apple and its brand. They will not want to be seen as having any association with encouraging people into debt they cannot manage, so there are significant brand risks involved.

You also can’t have helped but noticed the lengths Jennifer Bailey, Apple’s vice president of Apple Pay, went to in discussing data privacy and use. Each payment made creates a one-time dynamic security code, meaning every purchase is authenticated with touch or face verification on the device.

Where things get murkier is the spending analytics. Apple claims it won’t know what is purchased, where or how much. All that information is stored on the device, not a server.

Okay. And as for Goldman? Again, there were promises that they will never share or sell user data to third-parties for marketing or advertising, but that doesn’t mean they won’t use it themselves, right?

Lastly, it's a small thing but worth noting: Apple’s presence and size can exert significant pressure on suppliers in this value chain. This is across all potential players from Goldman to Mastercard, as we have seen them do before in move likes ApplePay implementations.

The fact there was no MasterCard logo on the card for me is a sign that the most valuable company on the planet has a very significant ability to throw its weight around in an industry that it is not even really in, albeit something a little more usual in the US market with Mastercard.

Watch this space

As the narrative around the FAANGs entering banking continues, this feels like the start of a new chapter.

Within a year I think we’ll see more features added and this being the beachhead for further financial products being added into the huge existing user base of 800 million cards Apple has within its ecosystem.

Oh, and did I mention that I really want one?

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 David M. Brear
About the author

David M. Brear

David is the CEO of 11:FS and since his dream of being a sportsperson was crushed (along with the ligaments in his knee!) and he had to get a proper job, he has worked in pretty much every angle of financial services industry but never lost that competitive desire to win.

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