Apple’s plan to bloat the Apple Card and Apple Pay and win the payments war
FINTECH SNARK TANK COMMENTS
Bloomberg reported that Apple is launching an initiative called “Breakout” to bring more financial services capabilities – like payment processing, risk and fraud analysis, credit checks and customer service – in-house. According to the article:
“This push would transform the company into a larger force in financial services, building on a suite that includes a credit card, peer-to-peer payments, the Wallet app and a mechanism for merchants to accept credit cards from an iPhone. Apple is also working on its own hardware subscription service and a buy-it-now and pay-later feature for Apple Pay transactions.”
Well, that helps explain why Apple acquired Credit Kudos, a UK-based public banking company that helps streamline and improve loan underwriting efforts.
But why the broader push to bring financial capabilities like payment processing and customer service functions in-house? Tom Noyes, CEO and Founder of Acc3pt and longtime payments industry insider, speculates that with Breakout, Apple wants to:
- Master the payment supply chain and minimize external vendors and partners touching consumer data.
- Launch a buy now, pay later (BNPL) feature to relaunch the Apple Card in various markets.
- Reduce network costs and improve integration into local schemes (e.g. see ApplePay India’s UPI integration).
- Improve the customer experience by deploying Apple Cash in all markets, connecting to local systems, and enabling P2P payments on Apple phones.
- Expand iPhone sales (with payments and financing) to demographics and geographies where consumer credit facilities are poor.
Apple is catching up in the commerce platform wars
Bloomberg says its sources are “people with knowledge of the matter…who asked not to be identified because the plans are not public.” Ha! Apple knows who these “people” are and would immediately fire them if they didn’t. want to these plans made public.
The plans were leaked because Apple is signaling to the market its intentions to compete with commerce platforms like Square, PayPal, Google and Klarna.
Apple’s penetration and control of the consumer market is incredibly strong, but until recently it had little presence on the merchant side. Apple realizes that it must pursue a platform business model to protect and grow its market position.
Other commerce platforms have been aggressively building bilateral capabilities for some time. Recent forays include:
- A Google/Square partnership. In June 2021, Square announced a partnership with Google’s Merchant Center to allow Square sellers to reach new customers through direct product listings on Google.
- Launch of Stripe Treasury by Stripe. In late 2020, Stripe announced Stripe Treasury which allowed it to expand its: 1) partnership with Shopify to create Shopify Balance, a business checking account specifically for independent businesses and entrepreneurs, and 2) banking partner network to Include Goldman Sachs and Evolve Bank as US Partners to enable standardized access to banking capabilities via APIs.
- The acquisition of Honey by PayPal. The 2019 acquisition allowed PayPal to offer targeted and more personalized promotions to consumers to acquire new business and increase sales. More importantly, it gave the payment company the ability to provide these capabilities to its merchant partners.
- The growth of the Klarna ecosystem for a decade. Stop thinking of Klarna as just a “buy now, pay later” company. Through its acquisitions and investments, the company becomes a commercial powerhouse.
Apple’s payment defaults
In a May 2021 article titled Apple Card grows to 6.4 million cardholders thanks to womenI wrote:
“Credit card issuers compete on rewards (who offers the most, tailored to cardholder preferences) or interest rates (for cardholders who typically rotate card balances). Apple’s strategy is different: Apple competes on the ecosystem.”
This is becoming more true day by day. But Apple has a few defaults that are likely influencing the acceleration of the Breakout initiative:
- Apple Pay usage is lagging behind. According to a Q1 2022 consumer survey I conducted for Cornerstone Advisors, approximately half (52%) of consumers with a checking account and a smartphone make person-to-person (P2P) mobile payments . Apple Pay’s share in this segment is 26%, in contrast to CashApp’s 43% share and PayPal’s 76% penetration.
- Apple Card growth is anemic. After seeing a doubling of Apple Card holders in 2020, growth in 2021 has slowed to a blistering pace. The Cornerstone survey found that the number of consumers with an Apple Card fell from 6.4 million at the start of 2021 to just 6.7 million at the start of 2022. This suggests that some (if not many) Apple cardholders Card have voluntarily or involuntarily abandoned their cards. in 2021.
Fintech Snark Tank takes: Apple is betting that a platform approach will help drive the growth of Apple Pay and Apple Card better (and maybe even faster) than its current marketing approaches.
Revenge of the Payments Nerds
Some time ago I was warned by a colleague who had worked in a bank for many years:
“Try to avoid paying people – they’re really smart, but they’re weird and corny.”
You can judge for yourself whether she was right or not, but payouts become more important competitive differentiators.
Marketing students learn about the “4 Ps of marketing”: product, location, price, and promotion. According to the creator of 4 Ps, Northwestern Professor Philip Kotler:
“The marketing mix is the set of controllable variables that the company can use to influence buyer response. The four variables help a business develop a unique selling point as well as a brand image. »
Payments have become an important part of the selling proposition and should be considered the 5th P of marketing.
By varying payment terms (for example, spreading payments for a purchase over a period of time) or extending credit before or during the purchase process, marketers can influence consumers’ likelihood of purchase .
Personalization of payment terms is another way for merchants to influence consumer choice of products and suppliers, and it is commerce platforms that have the data, analytics capabilities and connectivity to achieve it.
Apple, Square, Klarna, and Shopify know that reducing friction and cost in the checkout process influences shopping behavior. Therefore, having a superior checkout experience is key to building the commerce platform of the 2020s.