International Finance
Banking and Finance Magazine May-June 2019

Apple Card: Does the company really want to compete with banks?

Apple Card: Does the company really want to compete with banks?
While some experts see Apple’s new product as a ‘conscious decision’ to compete with banks, others think it is an effort to add users on Apple Pay

For a long while, Apple has enjoyed a lot of attention for its great design sense and a remarkable tech success story. Building on that success, the company has now teamed up with Goldman Sachs to launch a new addition to its product line: Apple Card. Apple Card will be rolled out this summer on the Mastercard network. With that, Apple and Goldman will foray into credit cards for the first time.

“The latest news from Apple isn’t unexpected,” Michal Kissos Hertzog, CEO of Pepper, a native mobile banking service, said. According to him, “a report released by Pepper earlier this year found that two-thirds of decision-makers at UK retail banks believe that most of the major technology companies will offer retail banking services in the next five years.” And with Apple, “well, now they have!”

Apple foraying into the payments market has stoked a lot of criticism. Because the company relying on the whole banking ecosystem to get Apple Pay to where it is today, and then making a conscious decision to compete directly with those partners, has hurt the industry sentiment. Jordan McKee, research director at 451 Research, said: “They’re not just competing in Apple Pay, but they are [also] opening up features only for the Apple Card that other banks can’t leverage.”

That said, Apple Card is not a novelty. Like every other Apple product, the card is designed to look premium: it is made from titanium, and displays the logo of Apple, Mastercard, and Goldman Sachs. There are no other usual features such as magnetic stripe, CVV number, or expiration date on it, however. Those specifications will appear in the Apple wallet, meaning that the card can only be used with EMV chip and PIN during point of purchase.

The reason for doing so is that having select data on the card can drastically reduce fraud and with a real-time fraud protection, cardholders will be notified during any suspicious transactions. Coming from Apple, the fraud protection feature was expected to be unique—but it is not, because other financial institutions such as Monzo and Contovista already have it.

So, the one thing that sets the card apart is that it perfectly complements Apple’s product line—which can obviously not be achieved by any other company.

Exclusivity of that sort comes with a price. Cardholders cannot depend on Apple Card alone. It appears that limiting the physical card to an EMV chip restricts its use in markets where transactions are possible only through embossed card data and magnetic stripe technology.

Second, Apple Card does not support contactless payments: One might assume that the option was removed because of the card’s sophisticated titanium make—but the actual reason is to prevent extracting the card number through NFC, if it is stolen or lost. Moreover, it could also be a “deliberate decision to trigger the cardholder to use Apple Pay whenever contactless payment is available. Also, the fact that for payments with the physical card there is only one percent cash back (instead of two to three percent with the virtual Apple Card) points to this direction,” a blog on Medium reads.

Even though some experts argue that Apple launching its own credit card is a potential threat to banks, there are reasons to believe otherwise. Kevin Morrison of Aite Group told the Financial Times: “It’s a matter of what’s already in your wallet . . . what is going to compel me to apply for that Apple card? I have chosen my other cards for a reason.” It’s understood that consumers already have several other cards in their wallets—which means, Apple Card will have to compete with Citibank, Chase, and the rest. In addition to that, the company hasn’t attempted to display interest in acquisitions. In particular, the need to establish a ‘co-branding’ agreement with Goldman Sachs might not have been necessary, if competing with incumbent banks was on Apple’s agenda.

At a time when every bank is almost rehashing the same type of financial offering over and over again, any change is significant. But in the case of the Apple Card, the only redeeming aspect about Apple’s new product is that it might serve as a ‘wake-up call to incumbent banks’ to think bigger, because just another banking app or even ‘the profit and loss business model’ won’t help any longer. A whole new banking experience is what they will need to thrive on in the long run.

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