Is Apple Pay a Trojan horse for banks and fintechs?

by chebbi abir

Concept of a Trojan horse should be familiar to anybody who read in school the Iliad, an epic poem, attributed to Homer. For those who are not the big fans of an ancient Greek, they might recall the thing from the movie Troy where Brat Pitt was playing brave and super handsome Achilles. However, it is much better to refer to Homer’s poetic version of events rather than to Hollywood’s action movie. Which by the way Homer’s estate should sue. Let us interpret the story in our way…

When Apple has started to mingle with Banks, war for customer was in the air. It had been raging for few long years when Banks believed they have nothing to be feared from Apple. They were developing new mobile banking apps for iOS adding more addictive touch points for using a smartphone. In the meantime, customers were getting used to Passbook app for storing tickets and loyalty cards, and the Touch ID fingerprint scanner with an API paving the way for more secure apps. Little did they know, business developers from Cupertino had another trick up their sleeves.

In a stroke of genius, Apple built Apple Pay with a hollow belly in which secret features were hidden. After Tim Cook convinced Banks that this iOS feature was a peace offering to make life of their clients better, Banks happily accepted it and brought Apple Pay within their fortified head quarters. What is more, other banks started to fight between each other, who next will get Apple Pay for their customers. No more than 5 years later, as Banks slept, hidden features of Apple Pay were unlocked with “Apple Card”, a credit card with daily cash rewards, simplified statements, and no fees. It happened without slaughtering any Trojans on the way.

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Big boys are taking over payments

I gave free rein to my imagination and my epic story is not even close to anything good. But I hope you get my point. Back to the ground. Yesterday, on 25th March, during “It’s show time” event at the Steve Jobs Theater Apple announced launching a new credit card. Of course not alone, but with Goldman Sachs which is the issuing bank and Mastercard providing a key payment partner to get a global base. First is a newcomer to customer banking, but a giant in terms of investment banking and financial services with 150 years of experience. Second one is with Apple from the beginning of Apple Pay inception in January 2013 (as some sources say).

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The news is not new, it was reported last year that Apple and Goldman Sachs are teaming up to launch a new consumer credit card. Back then it was already clear what kind of benefits this marriage will bring, and today we can easily confirm most of them:

  • This is Goldman Sachs first attempt into the consumer credit card business, and second step into retail client segment after launching in 2016 personal loans and savings accounts through its online bank Marcus.
  • Apple will receive a fee for every consumer for whom will issue a card, which is a common practice in the industry.
  • With brand new type of fees Apple will be able to diversify its streams of revenueamid slowing top-line growth due to poor iPhone sales in China (to name one of few reasons).
  • Substantial cash-back component or other incentive to use the service will accelerate the adoption of Apple Pay.
  • Some analysts say that Apple may receive a cut of the sales generated from purchases.

Those are just few benefits of cooperation for those giants. The combination of corporations will likely make a big splash on the consumer credit marketplace given their capabilities in launching and marketing new products. On top of that I would like to add two things, revenues of both firms. Apple annual revenue for 2018 was $265B, a ~16% increase from 2017. On other side, Goldman Sachs annual revenue was $36B, which is ~12% increase from the previous year. Those are really deep pockets to push new product to the market. Knowing that, let us talk now about revenues of fintech unicorns, anyone? I really do not want to be sarcastic, but you need to admit that they have a firepower!

Apple Bank is here

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Has Apple become a bank? I believe they become a bank as much as Atom, Fidor Bank, Monzo, Starling, Revolut and other similar challenger banks / neo banks want to be. The question is – how much Apple is interested in becoming one. With the Apple Card, Cupertino may have just found its next big thing as they did before with own ideas for laptops, tablets and phones. In my opinion it is definitely an evolution rather than revolution, but Apple always makes what others have done before them more exciting. There are few things that say about potential success of Apple Card:

  • Banks already put their full weight and support behind Apple Pay. The public advertising by banks for the service is unprecedented. By promoting Apple Pay now, banks raised the awareness among the clients opening unconsciously doors for Apple Card.
  • The support of banking institutions helps position Apple Pay as a legitimate, safe way to pay. This is advertising that money can’t buy making Apple Pay more credible, and now Apple Card too.
  • Apple operates at the high-end of the market, owners of their devices, on average, have more disposable income and will likely be more willing to order another credit card to add to existing ones.

Is Apple Card good enough for clients to close their current credit cards and move to Apple? And if yes, let us just take it as a given that Apple Card achieves significant market penetration. The next thing might be Apple Coin…

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