If you’ve been listening to the analysts and pundits, Apple released a product on March 25 that wasn’t much to write home about. By credit card standards it ranked as a mediocre offering. By Apple standards, it wasn’t a new device or revolutionary technology.
So what’s really going on with Apple’s second big foray into the world of financial technology (Apple Pay being the first)? Turns out Apple CEO Tim Cook named the primary thing that will set the Apple Card apart.
From its personal-finance-management-style Wallet app user interface, to its data privacy commitments (Apple does not see your transaction detail,) to its number-less titanium card, Apple Card is actually a shining example of how digital giants can, seemingly overnight, beat financial institutions at their own game.
What is the Apple Card?
- A partnership between Apple, Mastercard, and Goldman Sachs
- Integrates with Apple Pay (already active on ~35% of iPhones and processed one billion transactions in Q3 of 2018) source
- No fees (no annual fees, cash advance, international fees, over-the-limit or returned-payments, late payment, missed payment, hidden fees) — that said, there might be a penalty in the form of interest rate
- 3-2-1 cashback rewards
- PFM tools that integrate with other Apple tools (Maps and Messages)
- Security features (no visible number, CVC or signature) — authenticated by TouchID/FaceID
Many analysts have already commented that none of these features are terribly innovative. In fact, many institutions offer better rewards. But there’s a hint about what makes this product a game-changer — Tim Cook chose his words carefully during the announcement, "...the most significant change in the credit card experience in 50 years." (emphasis added)
Apple’s approach to consumer-first experience, now applied to the credit card, should shake every banker to their core. As usual with Apple, they tool the incumbent's headline offer (3%, 2%, 1% cash back) and made it a sub-bullet point -- a distant memory of what makes a competitive credit card.
Why is the Apple Card scary?
It’s raising the bar on customer experience.
At first, you might not notice any change in your account-holder base, but make no mistake, once a consumer has used the Apple Card, they will evaluate EVERY other credit card by the standard set by Apple. The security and ease of the Apple Card will compound the so-called “unimpressive” reward structure into an unassailable force.
The experience Apple has created is a significant change, and experience is the product. It gathers multiple apps (and datasets) into a seamless user flow that provides a transparent understanding of spending and debt decisions (like modifying balance repayment amounts).
Apple Cardholders will enjoy several enhanced benefits.
Better understanding of purchases:
- A clean dashboard that breaks spending into categories.
- A repayment calculator that highlights interest scenarios.
- Map integration to verify where transactions occurred.
- The ability to use Messages to ask questions, update, or send money p2p.
Instantaneous rewards and updates:
- Cash rewards are paid out daily.
- A feed of rewards — making them feel more tangible.
- The initial application is processed quickly; and upon approval, the card can be used immediately — no waiting for the physical card in the mail.
Don’t underestimate the power of Apple’s brand.
Despite a highly saturated credit card market, the power of the Apple brand (and adoption of Apple Pay) guarantees a large audience eager to apply. In finance, we talk about the share of wallet, but consider that people have always managed finances from their pockets (hello, pocketbook?). Apple isn't competing for share-of-wallet, but share-of-pocket, and they already command a huge swath. Who actively wears their bank’s brand? Who identifies as a bank fan? It's easy to find people who hate their bank, but not so easy to find die-hard fans. That alone is a major threat.
Companies in Silicon Valley look for partners who are strong where they are weak.
This move by Apple paves the way for future financial products. We have seen fintech companies like Chime, Robinhood, Wealthfront, and SoFi make moves towards cash accounts. By paying rewards directly to the wallet, offering 3% on store purchases, and offering more subscription services (also announced) Apple has created a dynamic way to keep dollars in their ecosystem. Consider that there is approximately $1.2 billion stored in Starbucks gift cards and $13 billion in PayPal.
Again, Apple didn’t release the next electronic device we suddenly can’t live without. They didn’t discover the lost city of Atlantis. They simply did what they’ve been doing for decades: taking a product that people already depend on and applying their veritable best practices for great user experience.
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If you've been reading our blog or following our consumer insight studies, you'll know that we have talked about how consumers hate fees and crave rewards since 2015. Or, if you have followed the development of the Kasasa Loan dashboard, you’ve seen research showing that consumers want tools that bring more transparency and actionable insight into their finances.
How can banks and credit unions respond to this threat?
It is unrealistic to expect community financial institutions to directly compete with Apple, but there are lessons to learn from the moves we’ve seen thus far. First, recognize that customer experience is no longer limited to the confines of the branch. People want you to deliver a premium experience in the channel of choice and that is increasingly through mobile.
Second, don’t go it alone. Even giants like Apple and Goldman Sachs recognize the strategic opportunities in partnering. The situation is similar for community financial institutions and FinTech firms. Partnerships allow you to play off the strengths of one another. FinTech firms bring agility and innovation, whereas you might have the consumer base, retail footprint, and recognizable brand.
Third, offer products consumers want. This might sound obvious, but recall that 31% of megabank customers would use a local bank or credit union, but feel those institutions lack the products they need. Consumers want transparency, convenience, rewards, and speed – which all tie into our second point of finding strategic partners.
Finally, build a brand. With an increasing amount of change and competition, consumers will seek recognizable brands to simplify their purchase process. A brand with a reputation for quality and innovation (like Apple) will be able to save themselves from rate wars or other marketing strategies of attrition.