Dear banks, FinTech is coming for you
On its own, there is nothing overly innovative about the Apple Card. But taken in the context of their existing hardware/software ecosystem, it is a move that could send shock-waves through the financial services industry.
Yesterday Apple announced ‘a new kind of credit card’. A virtual credit card powered by Apple Pay and backed by MasterCard and Goldman Sachs with no fees, low interest and cash-back rewards.
A zero-fee credit card with cash back rewards that tracks your spending? No, there is nothing revolutionary about that. In fact, a quick Google search shows more enticing offers from any number of financial institutions with more lucrative sign-up bonuses and ongoing rewards/points/miles etc.
But that’s not the point.
I see the announcement of Apple Card as the first in a series of incremental offerings where Apple’s end goal is to lead the mobile payments and personal finance experience.
What matters about the Apple Card is how the consumer will interact with it — applying through Apple Wallet is meant to be almost instantaneous and the card lives natively on your device. The Apple Card massively reduces barriers to entry, does away with some of the biggest pain points around owning and managing a traditional credit card and opens the door for all types of future iOS integration, including:
- One-touch purchases in Safari and other retail apps
- ‘Shop by Voice’ with Siri
- AI-assisted financial advice and investment offerings
This is a step forward for Apple, however it can also be seen as somewhat of a defensive move to prop up Apple Pay which, despite being the dominant digital wallet in the market, has been described by analysts as ‘underwhelming’. Now almost five years old, Apple Pay is installed on just 31% of iPhones, largely due to difficulties in gaining support from banks and card issuers. Currently only two (ANZ and CBA) of the Big 4 banks in Australia support Apple Pay.
With this move, Apple is almost thumbing its nose to the banks that turned their backs on Apple Pay.
This is also a clear indicator that Apple believes its future success lies in its services business.
Along with the announcement of the Apple Card was the introduction of several other service-based offerings including Apple TV Plus and Apple News Plus. Apple currently generates around 13% of its revenue from services and still relies heavily on iPhone sales, which are slowing. Diversification is key and with significantly higher margins, strengthening its service offerings makes sense for Apple.
Although the Apple Card isn’t expected to have a material impact on revenues initially, if Apple can successfully curate a financial services ecosystem around this offering it could easily become one of its leading product categories.
It is D-Day for the banks
Let’s face it — banks are in desperate need of a makeover.
I’m at the stage in my life where I need to start thinking about buying a house and I genuinely dread the thought of having to go to my local bank and sit down at a desk going over endless forms and product disclosure statements to discuss my options with a financial adviser. I had to opt-in to receive text message notifications when my credit card is due. Banking isn’t easy. I for one would welcome an Apple-esque experience when it comes to financial products.
And there are plenty of examples of new business models trying to offer just that. SoFi is a membership-based personal finance company making borrowing, investing and insurance services easy and accessible in a completely digital environment. With no physical infrastructure, they are able to offer more competitive interest rates and innovative products like student loan refinancing. They also offer exclusive networking experiences to members — something I couldn’t expect from my bank.
Issues around compliance, self-cannibalisation and internal resistance have prevented major banks from innovating in this way and understandably so. But this has given more agile business models a significant lead in disrupting the financial services sector. Now major banks are feeling the pinch as countless of these FinTech firms and start-ups continue to challenge the traditional financial institution.
And now with one of the FAANGs entering the room, it just got a lot harder for banks to breath.
Apple has an enormous cash surplus to invest in developing a financial services offering if it is really serious about challenging the banks. And with no real innovation-led offering coming from within the banking industry, the only likely competitor to Apple will be another major tech firm (ahem, Amazon?).
There is no doubt hard-core fanatics will go mad for the Apple Card. And you can bet your bottom dollar the physical, laser-etched titanium version will become as much of a fashion accessory as the AirPods have been. But the real story here is that disruption in our financial services sector has finally arrived, and our banks are on notice.