In technology, especially when it comes to consumer-focused technology, Apple is viewed as a disruptive force. Tick down the list of offerings spanning decades (the Mac, the iPhone, the iPod, iTunes, the iOS operating system/ecosystem), and one can find that the ways we communicate, listen, stream and, indeed, interact with technology have all shifted.
One might argue that the shifts have been better or for worse (when was the last time one could separate a millennial from their iPhone for a decent conversation?), but Apple has made itself indispensable across many verticals.
That seismic change may not be felt in payments. However, according to Ondot Systems CEO Vaduvur Bharghavan (VB) in a recent conversation with PYMNTS’ Karen Webster, win or lose, Apple will change the conversation about how we pay by spurring existing stakeholders — especially card issuers — to examine how they come to market.
A brief recap: Last month, Apple said that, in partnership with Mastercard and Goldman Sachs, it would debut a new credit card, in virtual and plastic forms — with 2 percent cash-back rewards linked to the virtual offering and 1 percent rewards linked to the tangible. The digital card will be linked to Apple Pay. Apple Card is set to be available starting this summer.
The duality of physical and digital cards seems to have sparked at least some mulling from other firms. As Webster noted, PayPal has considered launching credit cards in an effort to more fully monetize Venmo.
VB noted that the incumbent issuers have a leg up — OK, make that three legs up — on the newest entrants like Apple. These issuers differentiate themselves with experience, financial incentives and relationships that are already in place.
A New Normal?
Apple gets its shine from the fact that, per VB, it “makes innovation accessible, and uses its brand to viscerally connect with its consumers and establish a new normal. They do not necessarily dominate every market they enter, but they are a catalyst for transformation ... maybe whether Apple Card takes off like they say is, actually, irrelevant to the industry.” Apple’s brand is based on simplicity, privacy and, of course, a “cool” factor that masks some of the simple aspects of its offerings. Wrap even modest rewards in a digital wrapper and, perhaps, demand will follow.
As VB stated, the fraud alerts and transaction monitoring — and the 1 percent rewards tied to the physical cards that will debut this summer — are less than seismic when placed alongside what is already out there.
“A lot of the capabilities that Apple has talked about [for its card] already exist in the industry,” he said. Yet, for Apple, the card and cash-back structure, “to me, is about two things. One is focusing on visibility to get engagement, and the other is incentives to drive that usage.”
The Incentives Question
The rewards on offer from Apple will likely “not be enough to influence a major change in behavior for a lot of people,” said VB.
However, the ancillary effect is that Apple may drive rewards on offer from other companies toward simplification. Many rewards programs are opaque. He noted that the Apple offerings (cash back through the Daily Cash offering, added back onto the card, with no fees) may serve as a “wakeup call” in the drive to establish digital engagement amid eCommerce growth. The issuers are finding, and will find, Apple’s card announcement as a sign that they now need to create a digital persona and engage with the consumer.
The ambition to engage and offer digital cards is one thing, but the reality is quite another. When asked by Webster how community and smaller banks can compete with Apple and other issuers as digital cards gain traction, he said there remains constraints in place for card offerings.
The smaller financial institutions rely on credit and debit processors for back-end capabilities, as well as on mobile and digital vendors for front-end capabilities. Of course, money matters because, as VB noted, smaller players do not have the funds to compete with global and national brethren on digital and AI investments.
Firms such as Ondot, he said, can give mid-tier financial institutions “economies of experience” through pre-packaged solutions that allow them to design and offer cards. In addition, top-tier banks have 50 percent of the cards out in force and 90 percent of usage in terms of credit transactions. Conversely, he explained, fewer than 10 percent of regional and community issuers have “any sort of credit [profit and loss] that matters.”
Against that backdrop, he said, “there’s a clarion call” for mid-tier banks to recognize that they have an asset that Apple doesn't have in the financial services realm, which is an existing relationship with the consumer that they trust.
“Let’s see where it goes,” said VB of Apple’s stride into cards, even as he noted that, “from an industry point of view, this will certainly cause a lot of conversation.”