If there was any doubt about Apple’s future direction, they have been eliminated since Monday’s event: the focus was only on services: there were no hardware renewals. In addition to a bored news app, Apple introduced a gaming flat rate and a new video streaming service. And of course: the Apple Card, a credit card developed jointly with Mastercard and Goldman Sachs.
Anyone who cuts away the entire marketing fat layer of the event will ultimately come up with two interesting topics for fintech experts.
First, the realization that Apple Pay is still a “sales house fight”. By the end of the year – then within five years since the launch of Apple Pay in the US – Apple wants to have launched its own payment service in over 40 countries. As the iPhone is officially available in almost twice as many countries, there is still room for improvement. And even in more than 40 countries, not all relevant banks are by far. A look to Germany with the large gap of the Geno banks and the savings banks shows this very well. Whether Apple sees this as a major problem may well be questionable, because with the Apple Card in the future as many customers come to a map. Credit rating required.
And so we are on the second topic: the Apple Card itself. It is a kind of “Apple Pay 2.0” card with significantly improved functionality from the user’s perspective, which should start in the summer of 2019 in the US. The question is: is it synonymous with Apple Pay – similar to how we and others. already know of the music streaming services – give a two-class society? Who uses Spotify in the entire Apple cosmos knows the problems: Play Spotify via Siri voice control on the HomePod? No indication, but Apple Music is running great. Use the Spotify app reasonably on the Apple Watch? Also hardly possible.
The question now is: does the same thing happen in the payment sector? Say Apple delivers a great full-featured solution and a slimmed-down version of other partners? It would be possible, because the “last digital mile” controls Apple, and this last mile is becoming more important.
The Apple Card – just old wine in new bottles?
But back to the beginning: The facts around the map seem (only) not really exciting at first glance:
Fact 1: It is a MasterCard. The reason is simple: Apple Pay as an acceptance mark at the point of sale (POS) – Apple can repeat it so many times – does not exist. Schemes such as MasterCard, Visa and Co. are accepted here.
Fact 2: It’s a co-brand card with Goldman Sachs as the issuing bank, meaning “Issuer”. According to the Wall Street Journal, Goldman Sachs is said to have invested US $ 200 million in infrastructure to make the most of retail banking. But there are dozens of co-brand cards around the world. In Germany, we know about co-branded cards such as the ADAC credit card issued by Landesbank Berlin or the Lufthansa Miles & More card from the DKB. In other words, Apple does not act as a bank, but uses a traditional setup with its own name but a bank in the background. This is remarkable in that Apple states, “Created by Apple, not by a bank” – interesting that this representation is acceptable to Goldman Sachs. Apparently, however, the business model is so attractive that you do not want to argue about such trifles and let Apple dominate the appearance.
Fact 3: The Apple Card includes a loyalty program. This allows for direct cash kickbacks for the customer, called Daily Cash. 3% for purchases at Apple, 2% for third-party Apple Pay. And with the corresponding plastic card – yes, they still exist – it is 1%. Please no misunderstandings: This works for German conditions high, but this is not altruism Apple. Because in the US, the so-called interbank fee – the amount that is paid by the merchants after payment by credit card to the card-issuing bank – on average at 2% for credit cards, in Europe at 0.3%. The same applies to debit cards. The amount of kickbacks is therefore nothing special for the US, many other loyalty systems offer these across the Atlantic as well. And even in Germany we have credit card loyalty systems with relatively high kickbacks. A good example is the Amazon Prime credit card, which also allows up to 3% kickback in Germany, at least as long as you stay in the Amazon universe.
Fact 4: A credit is associated with the credit card. According to the small print, this earns interest at 13.2%, up to a peak of 24.2%. One or the other may be amazed at the level of the interest rate, but even this amount is not uncommon for the US. And if you look in Germany important Co-brand cards, you can see high interest rates in the double-digit range, even if they are not quite as high as the Apple Card for various reasons. With this loan, so the business model is quite simple and could not be more traditional: the use of the card as a real credit card. A certain number of Apple users will probably use it, and Goldman Sachs will cut an attractive interest rate. Of these, then – suspected, but not proven – Apple, similar to the interchange fee, get a good sip of the income Pulle. And then it is not that bad that the card has no other fees. And now is also revealed why Apple goes this exclusive way: It wants to interest income of loans, because they are much more attractive than the interbank fee participations. And it’s clear why Apple offers a classic credit card with a background loan and no prepaid credit card with similar features. The credit is just too attractive and is therefore so prominently placed.
The Apple Card – what really differentiates them
So far, so well known and so boring. This leads to the question of whether there is anything special about this card, if everything seems so traditional? And yes, there is. This can be explained by the following three points:
Plastik 2.0 User Experience Dealing with partners
Plastic 2.0: The Apple Card also comes with a physical card in the known form factor. Against the background that the contactless Apple Pay payment function (NFC) is not yet widely available, understandable. Apple itself has for the important US home market in the keynote an acceptance rate of Apple Pay – ie a plastic and contactless payment method – called by 70%. The physical card is of course, according to the Apple-typical superlatives “the best and most beautiful card” of all time. This means in the sense of Apple that it is made of titanium, but at the same time is very minimalist. On the front you will find the name of the customer, the Apple logo and an EMV chip. On the back emblazoned a logo of Goldman Sachs and MasterCard. Otherwise, there is no card number, no CVV code, no expiration date and no signature. All that the customer can look up in the app, if he needs the information. That certainly increases safety. The classic rules, also called “Scheme Rules”, which normally every bank has to hold, just seem to be washed away.
Mastercard will probably argue that Apple has found new ways of security that allow deviations or refinements of the rules. This may be. However, another explanation is that Apple’s sheer market power and the prospect of a gigantic customer base will bring even the strongest partner to its knees.
User Experience: The user experience seems beyond any doubt after all that can be seen. Just Apple typical. The Apple Card is based on Apple Pay. That means: the Apple Card can be found in the wallet and every transaction is secured by Face ID or Touch ID. In addition, there is an application process directly out of the wallet, which should be completed within seconds. Customers can also reach the support via iMessage. In addition, there are activity and budget overviews, kickbacks, which are credited daily to the Apple Pay Cash account, and a simple and comfortable integration of the credit function. The credit function is both a curse and a blessing. It just seems to be tempting. But at least it seems easy to repay the loan. Here, as expected, there is little exposure. Rounding out the whole offer as so often with the topic of data protection. All of this is deeply integrated into the Apple ecosystem.
Dealing with partners
The handling of the partners seems remarkable. Apple did and struggles to win for Apple Pay partner banks. This has several reasons, among other things, Apple wants a share of interchange fees, and at the same time, Apple is from a customer journey point of view before the bank. The bank as a brand is a bit less important. And as it has now been described, Apple is changing the nature of the partnership: There is Apple Pay – and then there is just the Apple Card, which has boring functionality and is deeply integrated into the system.
Banks are unlikely to be pleased, as they have gone down the road to Apple Pay with a heavy heart, paying dearly for it and now realizing that they are not such an important partner. And especially for challenger banks like N26 and Revolut, who like Apple have the topic of customer experience at the top of their agenda, Apple’s way must be a slap in the face, as we have seen. Apple is now not just a platform operator but a competitor. In doing so, let’s be honest, most of the Apple Card features could also be implemented for other cards in Apple Pay. Will Apple do that? Or will it come to the “Spotify way” here? Say: I use what Apple provides, and everything is great or I have to live with a slimmed-down version, if I choose another provider?
But ultimately, an alternative strategic path to the classic bank Apple cooperation was foreseeable, just because only a fraction of the banks cooperated with Apple and many customers had to cumbersome change the bank to get Apple Pay. But there is another way. A way that is at least a little less aggressive towards banks, shows Google with its Paypal Mastercard cooperation. Here, customers who have a Paypal account can apply for a Paypal card with MasterCard acceptance and use Google Pay at the POS. However, the potential (direct) returns for Google are significantly lower.
How it goes on
After the start in the summer the map should be rolled out fast in the USA. According to the wishes of Goldman Sachs CEO Richard Gnodde, Europe and, more specifically, Germany should soon follow. But there are still a few people want to join – the regulatory authorities such as BaFin will look at whether all the framework conditions (KYC processes, money laundering, etc.) are respected. And the contest keepers, who are already pissed off by Spotify anyway, will also look closely at what Apple is doing. The political theme that US platforms continue to dominate Europe and push European companies into insignificance will also (again) gain momentum. And Goldman Sachs will certainly not be able to cover all countries, that is, other banks will be necessary as Issuer banks and especially “white label” banks would certainly like to be there. Either way, Apple Pay took 5 years to get 50% coverage. Even the Apple Card will not be in six months in 40 countries. So Apple has a lot ahead of it, and it will not work without resistance.