Welcome to Apple Bank...
With Apple Pay and Apple Card, Apple has dipped its toes into the financial services sector. What could be its next logical steps?
In my last edition, I discussed the powerful potential of an Apple service and hardware bundle. Expanding on the theme of Apple’s services, I’m taking a deep dive into Apple’s interest in financial services. Let’s go…
When Apple revealed the Apple Card in March of 2019, it came across as a peculiar product launch to me. Why would Apple, one of the world’s most loved brands, want to enter into the world of lending and banking? No offence to banks or credit card companies, but I don’t think love and admiration are common emotions people feel towards their financial institutions…
At the same time, it follows a similar trend of Apple’s entry into an established, but stagnant product category (think portal music players, smartphones, etc.). Given its image of trustworthiness, emphasis on privacy, in addition to its history of designing simple experiences for previously complex tasks, I think Apple is in a position to turn the iPhone into the ultimate financial management product.
In this entry, I’ll give you a quick overview of Apple’s current forays into financial services, explain what I think they should do next with the Apple Card, and discuss how they could create a one-stop shop for money management.
Apple’s Existing Financial Service Offerings
Apart from its payment processing on the App Store and iTunes Store, Apple’s first foray into financial services was with the introduction of the NFC chip in the iPhone 6, and the subsequent release of Apple Pay. Apple Pay now accounts for 10% of all global card transactions, and if you aren’t currently using it, I highly recommend it (and its way more secure than your chip cards).
In 2017, Apple released Apple Pay Cash in iOS 11.2, allowing for peer-to-peer Apple Pay payments to friends and family; similar to an e-transfer or services like Venmo or Square’s Cash App. You can add cash to your virtual Apple Cash Card balance and use it to send to friends or make purchases with Apply Pay. Apple Cash is currently limited to the US.
As mentioned in the intro, the Apple Card was revealed in March 2019, and launched in August of that year. In partnership with Mastercard and Goldman Sachs, Apple set out to “reinvent” the credit card with the elimination of fees, easy payment tools to pay less interest, quick applications with no credit impact, and daily cash back to your Apple Cash balance. The card offers 3% daily cash on Apple purchases, 2% when using the digital card with Apple Pay, and 1% on all purchases using the physical titanium card. Apple also has expanding partnerships with brands like Nike, Uber, and Exxon Mobile that give you 3% back when shopping at their locations. In 2021, Apple introduced the ability to add your spouse or other family members to your Apple Card; a feature that should have been ready at launch if you ask me.
This past February, Apple announced Tap to Pay, following its acquisition of Canadian company Mobeewave. With a flip of a switch, Apple has basically enabled millions of merchants to use iPhones as a payment terminal. It’s only in the US right now, but is already being described as a Square killer. I don’t think this is necessarily true since Apple is simply opening the NFC chip up to third-parties like Square. Plus, Square makes its real money on payment processing, not on hardware.
Apple Card+ & Other Evolutions to Existing Offerings
First things first, Apple should expand the Apple Card internationally. It really is surprising that we have now passed the three-year anniversary of its announcement and the card is only available to US residents. I fully understand the intricacies of financial services versus something like music and record labels, and the need for an issuing bank in international markets, but Apple is known as a deal-maker!
Next, Apple should launch a higher-tiered Apple Card+. With Apple products, I usually think of exclusivity and the high-end market, but in its current iteration, the Apple Card is a very mediocre cash back offering. Further, with 6.4 m cardholders and no annual fees, I can’t see it making a noteworthy revenue contribution. The Apple Card+ could compete in the high-end market alongside cards like the American Express Platinum Card. With an annual fee of $699, this sort of fee would be palatable for Apple’s higher income user base, but would need to justify it with an array of benefits above and beyond cash back:
Free annual AppleCare+ subscription for the cardholder’s iPhone - an even more premium (and easy) offering than most card’s “phone insurance”
$10/mo credit on Apple One, or other Apple Services like Apple Music (which would cover the cost of a monthly Music subscription for an individual and Music has the largest established user base of Apple’s services)
Given the Music talent and connections Apple has, I could also foresee discounts on concerts and events from select artists similar to American Express Member Experiences
Additional exclusive Apple-oriented perks could include same-day Genius Bar appointments, complimentary free/expedited shipping, additional trade-in value for your old Apple products… just spitballing here!
Apple would also need to offer lounge access like competing cards do, but could likely swing something with United Airlines given its reported spending on employee travel, or another airline.
Apple also has a competent e-chat network between AppleCare and iMessage for Business, so I think it could offer a similar Concierge-esqe service for cardholders to book dinner/travel reservations like AmEx does.
Annual credits for travel-related purchases and ride-hailing services are also other check boxes it would need to offer (they already have a partnership with Uber for 3% cash back)
Increase the current 3% cash back return on Apple purchases so it is competitive with similar retailer-branded Credit Cards (Amazon gives 5%, Canadian Tire gives 4%, etc.)
Similarly, I think Apple needs to revamp Apple Pay Cash. Having a built in app within iMessage would make evening up for a dinner bill in a group chat with friends a easier and there is a large international opportunity for it given that Venmo and Cash App are US only, and Interac e-transfers are clunky. I also think Apple could offer a Savings account and physical debit card for Apple Pay Cash, similar to Wealthsimple’s Cash product, but more on that below…
“Welcome to Apple Bank, how can I help you?”
This past week, it was reported Apple is working on a multiyear plan, dubbed “Breakout”, that would bring a wide range of financial tasks in-house. This is a classic Apple vertical integration move, and would seek to bring services like payment processing, lending risk assessment, fraud analysis, credit checks, and even handling of customer service functions like disputes, in-house. Ultimately, the move would give Apple more control over the financial process, cut out middlemen to collect more revenue, and most importantly, roll out new products on its terms; Apple’s current partners CoreCard and GreenDot are US-focused operations, limiting Apple’s international growth. So is this the first step on the road to Apple Bank?
First, let’s talk about the state of banking apps. Good user experience is often overlooked as it is expected, but when an experience is broken or cumbersome, you immediately notice it. I don’t want to dunk on banking apps or other personal finance apps, but UX is clearly not their priority. With the Apple Card, Apple has already created an interface that is easy and obvious to use, and clearly communicates the interest you will end up paying if you keep a balance so you can make an informed decision.
Apple should leverage its chops in good design and turn its Wallet app into a personal finance app to help users manage upcoming bills and send peer-to-peer payments. Part of “Breakout” could also include Apple launching “Apple Pay Later” its own buy-now-pay-later product. This could also be housed in Wallet, with the hardware subscription service I discussed in my last edition.
Next, if Apple turned Apple Pay Cash into a true debit card, it could also easily create a digital-first chequing and savings account. Apple also already offers a half-decent stock app, sourcing its data from Yahoo finance, but if it’s now storing your money, it could also help you invest it! Stocks+ could be a new entry into Apple’s service offerings, partnering with trading companies to manage and track investments, and Apple could automatically invest the cash back you collect from your Apple Card. Apps like Acorns and Robinhood offer this type of “spare change” investing feature.
So, while I don’t think Apple will be setting up ATMs in its retail stores anytime soon, I think the writing is on the wall for its intentions in this space. Given its emphasis on user privacy and history of customer-centric products, I do hope that it a tries to do for finance what it has done for smartphones, music, and other areas.
That’s a wrap folks! Hope you all had a great weekend, feel free to share any feedback, and stay tuned for the next edition!
Good morning, Ben.
I like this article.
Can I translate part of this posts into Spanish, with links to your article and newsletter?