Apple Card & the Future of Personal Finance
What Apple’s first credit card says about the future of financial services, and what it leaves out
Last week, Apple Card officially started rolling out to iPhone users on a limited, invite-only basis. Unveiled back in March at Apple’s service-oriented press event, Apple Card is the first credit card product from the Cupertino company, marking the tech giant’s ambitious yet confident entry into the personal finance sector following the success of Apple Pay. Naturally, both the tech and finance sectors are abuzz with renewed discussions over its potential impact on the credit card industry and, by extension, consumer-facing financial services.
Opinions tend to differ on the details, but the consensus seems to be that Apple, as it has done many times before, has created a product that will raise the bar for user experience design and push the entire industry forward. Indeed, taking a closer look at the design and implementation of Apple Card reveals a lot about the future of personal finance, which will become increasingly digital and user-friendly, disintermediated by tech companies, and driven by lifestyle-oriented branding and services.
That being said, it is important to note that Apple Card is not exactly the kind of revolutionary product that will significantly alter the credit card industry. At the end of the day, it is a nice entry-level credit card that Apple created by partnering with Goldman Sachs, which uses Mastercard’s existing network for processing payments. Yes, it will push the envelope on mobile banking and credit card experience and raise the bar for the whole sector, and that will be of great benefit to consumers in the long run. Looking at the future of personal finance, however, there are some other emerging trends, such as the burgeoning application of AI and blockchain, that are far more disruptive and will likely play a bigger role in reshaping the consumer-facing finance sector.
To prepare for that future, financial service brands will need to not only learn from what Apple is doing with Apple Card, but also look beyond it to stay ahead of the technological curve.
What Makes Apple Card Special
According to a recent survey from J.D. Power, 38% of U.S. adults are already aware of Apple Card, and among those who are aware of the card, 35% say that they are somewhat or very likely to apply for the card. This means that 13.3% of all U.S. adults are “somewhat or very likely” to apply for Apple Card. What’s more, the survey found that 52% of Apple Pay users say they’re “likely to apply for the Apple Card in the next 12 months.” It is no exaggeration to say that Apple Card may be the most anticipated credit card launch in the history of credit cards.
Although the stunning physical credit card made of titanium may inevitably become a status symbol, as Apple products tend to do, Apple Card is by no means positioned as a luxury product intended for an upscale consumer base. Instead, it is designed to be an easy-to-get, entry-level credit card for the mobile-native generation. Reportedly, Apple wanted to create a technology platform to approve as many of its 100 million-plus iPhone users in the U.S. as possible, within the bounds of regulations and responsible lending. Of course, this means that some people with subpar credit scores would also get approved, with low credit limits and high interest rates as a safeguard.
What makes Apple Card stand out from the other credit cards in the market today is simple: it is made by Apple, a company known for delivering superior user experience by controlling both the hardware design and the software layer. Specifically, Apple Card has three main selling points:
Mobile-Native User Experience
The key value proposition Apple is making for Apple Card is mostly focused on improving the user experience of credit cards. Natively integrated with the iOS Wallet app, the Apple Card feels like a natural extension of the Apple Pay experience. The fast application and activation process is as elegantly streamlined as one would expect from Apple, and the interface is designed to be user-friendly, displaying each transaction with clear merchant name, store location, and sortable purchase category. Weekly and monthly spending summaries provide users with a better understanding of their spending habits. In addition, it also boasts a daily cashback reward, no extra fees, and comparatively low interest rates, all attractive features to have for a hassle-free card suitable for people looking to get their first credit card.
Data Privacy & Security
Another important selling point Apple is highlighting for Apple Card is the unmatched security features and data privacy it offers. Credit card theft and fraud are common, with data showing the number of credit card numbers exposed in 2017 totaled 14.2 million, up 88% over 2016. For this reason, and also in keeping with Apple’s minimalist design aesthetic, the physical Apple Card is designed to thwart credit card fraud, as it doesn’t have a card number, CVV, expiration date, or signature bar on the back. In addition, all of the spending, tracking and other information is stored directly on the device, not Apple’s servers, so Apple won’t know how or where you are using Apple Card. Apple also promises that “Goldman Sachs will never sell your data to third parties for marketing and advertising.” Apple has been touting the privacy features of its products for a while, and Apple Card again sees Apple cite privacy protection as a key differentiation point.
Consumer-First at the Heart
Apple Card’s UI design stands out with clear markings of spendings, due payments, and potential interest to be incurred if the balance is not in full. This is important because Millennials in particular struggle with credit card debt — recent studies find that 3 in 5 millennials carry credit card balances month to month, while 45% don’t know the interest rate on their card. While most credit card companies rely on interests and various fees for profits, Apple Card is designed to improve one’s financial well-being, offering the card owner the information they need to help them learn about their spending patterns and how to lower interest payments. Compared to the other credit cards, Apple Card is decidedly built on a more consumer-friendly premise.
At the end of the day, Apple doesn’t need to make a profit on Apple Card, or Apple Pay for that matter. Instead, Apple’s main goal with Apple Card is to ensure Apple Pay’s retention and encourage curious users to give Apple Pay a try. The more that people use Apple Pay with Apple Card, the more Apple gets to keep most of the money within their ecosystem. Apple stands to receive a much larger benefit in terms of having people become more engaged with the Apple ecosystem.
What Financial Brands Can Learn From Apple
Granted, not everything that Apple is doing with Apple Card would be replicable for most credit card companies, given the vastly different business models that they operate under. However, there is still a lot that financial service brands can learn from Apple.
One of the key selling points for Apple Card is that it is designed to be primarily used via Apple Pay — the physical card is just there to ensure coverage in places where Apple Pay is not yet accepted. Because Apple controls the entire hardware-software stack, they designed the whole experience to be mobile-native. Everything from applying for it to managing the day-to-day spending is done through the Wallet app, to the point that there is no web portal for paying off card balance at the moment. This mobile-native approach is something that many banks and credit card companies are already adopting at varying levels, but needs to be fully embraced at an accelerated rate to meet the rising consumer expectations on what a modern credit card experience should be.
Furthermore, Apple Card points to an interesting dynamic happening in the personal finance sector, where tech companies are leveraging their expertise in designing user experience and direct control over the digital interface to hijack the customer relationship. For example, in the case of Apple Pay, Apple is running the show on the consumer-facing end while Goldman Sachs, a bank with no previous consumer business, handles everything on the backend. Apple owns the consumer interface and the branding of the product, leveraging native integration to drive adoption and disintermediate the financial service brands from their customers.
The same is true for other payment platforms as well. Last month, Amazon used its annual Prime Day sales event to nudge more customers to use its own digital payment method Amazon Pay on partner retailers’ websites with alluring incentives of up to 30% cashback. In China, things have moved even further along. Alipay and WeChat Pay, the two dominant mobile payment solutions used by a combined 79.4% of Chinese smartphone users, have both built out their payment apps to become full-blown lifestyle platforms where users can order food deliveries, pay utility bills, shop for insurance products, or even invest their savings, all without leaving the respective app. In Japan, messaging app Line is linking up with Mizuho financial group to develop a banking product that will be integrated into its app.
Of course, incumbent brands can choose to counter this disintermediation effect and fight to keep their customer relationship. However, tech companies are generally better at developing digital user experience than incumbent banks and financial services, but they lack the infrastructure and experience for managing financial products. In other words, if your brand has no experience developing digital interfaces or delivering digital-first solutions at scale, it may be time to either acquire a fintech startup that can develop those things for you, or consider partnering up with a platform owner to access their consumer base.
It is also interesting to consider how Apple is starting with an entry-level card with cashback rewards. While specific credit card perks around travel may remain a priority for some consumers, cash will likely prove to be the more powerful (and valuable) reward for the vast majority of people. Apple clearly wants the Apple Card to be a mainstream product to lock as many users as possible in its ecosystem, with room left for upscale growth should Apple choose to pursue it down the line and extract higher lifetime value from its younger consumers.
Too many financial products are developed to target the affluent consumers or the HENRYs (high earners, not rich yet), and there is nothing wrong with audience segmentation. But given the harsh financial reality that the younger generations are facing today, it would be remiss not to develop financial products with this growing set of audience in mind. In contrast, many fintech startups have developed products specifically made for this demographic. For example, Acorn, a micro-investment app, boasts 4.5 million users with an average age of 32 with a median income falling somewhere between $50,000 and $60,000, an income level significantly lower than most traditional investment products. No future-forward financial service brand can afford to ignore the needs of the majority of this future consumer base.
At the end of the day, Apple is using Apple Card and Apple Pay as value-added services that provide a differentiated user experience to help it sell more iPhones. Recent moves to expand Apple Pay to sticky use cases like mass transit or campus keycards is another way for Apple to ensure they are deeply entrenched in the everyday life of its users. What Apple is ultimately selling its global consumers is a sleek, convenient, modern lifestyle enabled or enhanced by its plethora of products and services.
This kind of lifestyle-oriented branding is something that many financial service brands are also starting to embrace. American Express, for example, is using Resy, the restaurant reservation service it acquired earlier this year, to offer Amex customers special perks around dining out, such as the ability to reserve exclusive restaurant events early. Reward points alone are no longer enough. It is time for brands to deliver a holistic lifestyle experience. After all, how we spend our money and manage our financial assets is ultimately a lifestyle choice, and that is something more financial services can lean into with additional services that cater to the lifestyle needs of their target audience.
The Future Beyond Apple Card
The arrival of Apple Card is certainly a harbinger of how the future of personal finance will shake out, and the incumbent brands will have to accelerate their existing mobile initiatives to keep up with the consumer expectation raised by Apple. That being said, there are also some crucial developing trends that Apple has yet to touch upon, and they are the areas that incumbent brands in the financial space should explore to stay ahead of the competition.
The Rise of Subscriptions & Automated Payments
The evolution of payment is one marked by an insatiable need for convenience. We switched from cash to checks, then to plastic cards and mobile payments, all in the pursuit of reducing friction. Now, beyond mobile, payment is getting ready to fade into the background and become invisible, thanks to the rise of subscription services and automated payments.
A 2018 survey found 15% of online shoppers have subscribed to an e-commerce service in 2017, with 46% of respondents subscribed to an online streaming-media service. And if there is a sense of subscription fatigue setting in, it hasn’t hit most people just yet. According to a recent eMarketer report, 34% of Americans say they believe they’ll increase the number of subscription services they use over the next two years.
The spread of the subscription model across verticals, be it Stitch Fix or Netflix, is quickly making payments an afterthought for many consumers. By making payments a monthly routine, the subscription model further removes the banks and credit card brands from the customer relationship. In the near future, the rise of checkout-free stores like Amazon Go will further automate payment for day-to-day transactions such as grocery shopping.
Looking ahead, subscriptions with card-on-file will also likely become what powers IoT-based commerce, consisting of connected devices that can monitor usage and automatically reorder when running low. For instance, Amazon has already launched monthly subscription services for categories such as pet food and baby products. When Amazon works out a way for these two services to work in tandem automatically on smart home appliances, payments will further fade into the background and leave room for the tech firms to take control of the financial relationship with their customers.
Productization of AI & Consumer Data
The application of AI and machine learning is breathing new life into the financial sector via better algorithms and automation, taking advantage of the myriad of consumer data available today to create more personalized offerings. This data-driven approach has already taken the financial sector by storm, and it will soon bleed into regular consumer products thanks to advances in machine learning and increasing data collection.
One prominent example of the productization of AI in personal finance is the rise of the so-called “robo-advisors,” a.k.a digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. Consumers, especially Millennials, prefer them due to the simplicity, ease of access, low fees, and low minimum balance they offer compared to the traditional, human-staffed financial-coaching services. A slew of financial assistant apps such as Albert, Trim, and Clarity are helping people make personal budgets investment options. AI-powered investment tools like Betterment and Wealthfront promises to do the research on customer’s behalf and make the investment process as simple as managing regular online banking accounts.
In addition, consider the insurance industry that will be transformed by the increasing amount of trackable consumer data generated by the rise of IoT devices. New kinds of insurance product could use data collected from wearables (for healthcare and life insurance), connected home devices (for property insurance), or even connected cars (auto insurance) are growing, offering consumers discounted premiums in exchange for their data. Privacy concerns aside, this presents a win-win solution for the insurance sector to customize their offers to better fit each individual customer’s need and lower the cost.
The Blockchain Revolution
The development of blockchain-based financial products, especially cryptocurrencies, promise a revolution that could reshape the entire global financial industry. For example, one of the more interesting and feasible wonders blockchain could bring to personal finance market is a decentralized credit scoring system and microcredit, and startups such as Colendi are working to make that a reality. If you’d like to learn more about the basics of blockchain, you can check out this handy guide.
Facebook made a big splash in June with Libra, detailing its plan to launch its own cryptocurrency with the backing of 29 launch partners. While Facebook’s dwindling consumer trust and mounting regulatory scrutiny may render wide Libra adoption a dim possibility, it theoretically holds great potential to disrupt a world financial system built on flat currencies and bring the unbanked and underbanked population into the fold of digital economy. It’s still too early to tell how things will turn out for Libra, and there are far too many variables that could trigger unforeseen implications even if it does end up becoming as a global digital currency. For a deeper dive on Libra, you can read our recent analysis here.
Beyond Facebook’s Libra, many incumbents are already busy adopting blockchain technology to future-proof their business, despite strong regulatory hurdles still to overcome. In February, JP Morgan rolled out the first US bank-backed cryptocurrency called “JPM” to instantly settle transactions between clients of its wholesale payments business. Similarly, Visa also rolled out a blockchain-powered B2B payments product for cross-border services. While these two products are not consumer-facing, they indicate a strong interest that the big banks hold for blockchain applications. In addition, brick-and-mortar giant Walmart may tap the unbanked market with a cryptocurrency product to fuel its retail business.
All together, these three trends show that the future of personal finance is poised to incorporate emerging technologies to provide highly customizable, fully automated, and widely accessible products and services to all consumers, with a (hopefully) balanced data-value exchange that will supercharge the entire value chain. AI-powered fintech companies offering digital-native services are well equipped to respond to new demands and rising expectations of new generations of customers. In response, incumbent banks and financial services have a lot to do to hold onto the customer relationships they have cultivated and learn from the new tech-savvy entrants to gracefully retool their services to fit the shifting paradigm.
If you want to learn more about Apple Card or want to chat about the future of personal finance and how to future-proof your business, please reach out to Josh Mallalieu, VP of Client Services, (josh@ipglab.com) and ask for our latest category disruption report on this topic.
