Digital Banking

How Apple Card Brings ‘Existential Crisis’ To Smaller FIs

Apple Card challenges bank services

Apple Card is the tech giants shot across the bow at banks.  Rachna Ahlawat, co-founder and executive vice president of Ondot Systems, tells Karen Webster banks – especially smaller FIs – must grapple with the need to offer a range of services “wrapped” around their digital cards. Here’s how the battle is being joined.

With the recent launch of the Apple Card, Apple has sent a signal that they seek to offer a better user experience than banks.

In fact, their slogan for the card is “Created by Apple, Not a Bank‎.” The fact that Apple is entering the space should serve as a wake-up call to banks, according to Rachna Ahlawat, co-founder and executive vice president of Ondot Systems.


“This is an existential crisis for at least the mid-tier, and smaller financial institutions,” Ahlawat said in an interview with Karen Webster. “What’s unique about this packaging from Apple is it’s the first time a tech giant known for understanding consumers has come up with a payment instrument — their own card. And the card is no longer just a payment instrument; it’s more than the card itself.”

To that end, Ahlawat, indicated that financial institutions (FIs) and credit unions have some catching up to do when it comes to navigating the physical-to-digital divide in bringing digital cards to market.

That’s especially true as issuers are no longer just competing with one another, but are increasingly going head-to-head with FinTechs and Big Tech, as digital is what drives their business and the value they deliver to consumers.

Of course, with the newest player in that competitive mix, Apple Card offers up a new card paradigm, marked by onboarding and simplicity of interface that, in turn, clarifies the relationships between merchants and cardholders, Ahlawat said.

And according to Ahlawat, past may be prologue. The current changes being wrought in the card market by Apple have a precedent of Apple’s foray into the phone market more than a decade ago. Ahlawat noted that Apple introduced the iPhone in a marketplace that was nearly saturated by players such as Nokia and Motorola, RIMM and Blackberry.

“But Apple changed the definition of a cellphone — to a smartphone,” she remarked. “Now we use our phones to make calls, yes, but are also using all the apps and services that are built around them.”

Ahlawat drew a parallel to today’s card industry, noting that many of the features Apple announced with its card have been available across other issuers for a while. By way of example, she said, Ondot has helped to introduce the concept of controls and alerts across card management offerings, which are now used by more than 4,000 FIs.

In truth, she said, the Apple Card is not just branded by the tech giant, but is also defined by the digital services that are wrapped around (and within) the card itself.

Beyond the cash-back rewards lies the user experience itself, allowing the management of the card’s features and controls through a single interface, as Ahlawat told Webster — and the experience is what may spur consumers to make it their top-of-wallet card.

She said that banks of all sizes, as well as credit unions, may be so focused on increasing card volumes that they may be missing a key indicator of whether their user experience is optimal.

“If the experience is easy, and if it takes only a few steps to do something, such as open the card, dispute a transaction or set up travel notifications, this instant gratification reinforces the use of the cards,” Ahlawat said.

Instant gratification also demands instant visibility, she added, offering clarity on transactions and products in real time. As she told Webster, waiting every 30 days for a card statement to see accrued points or potentially suspicious transactions is no longer satisfactory for consumers.

Instant Issuance

Webster noted that instant issuance also plays into the twin goals of instant gratification and instant visibility — and FIs need to consider these factors.

As Ahlawat said, consumers who want to sign up digitally for new card offerings and who need to complete data mandated by KYC do not want to toggle between interfaces.

“And then what happens after the issuance?” asked Ahlawat. “Are FIs able to entice the cardholder to use those cards?”

Especially in the U.S., FIs have been slower to embrace APIs to stitch together the different parts of the application process (and tie together multiple third-party vendors) into one seamless flow.

Ahlawat noted that with the advent of Apple Pay and Google Pay, consumers no longer have to wait for their cards to arrive in the mail. As soon as the card is issued, it can be pushed to the device.

“Instant gratification is built into the application process, and so is immediate use; so, there’s a delightful experience” with instant issuance, she said.

Ahlawat noted that cards are essentially just numbers, so most of the transactions happening these days are tied to cards on file.

“We don’t usually enter our cards online anymore,” she said. “We have our favorite merchants, and this removes the relationships between the brand on the card and the card number.”

In this scenario, making it easy to push a new or replaced card into the digital wallet, and making it top of wallet, is critical, because customers no longer reach for the second card in the wallet.

It is the service that surrounds the card on file, and transaction management, that become important in everyday life. Ahlawat offered the example of managing data if a card is lost or stolen, where each of, say, a dozen merchants can be informed, and accounts can be put on hold until new (digital) cards can be issued.

Banks must grapple with new ways of thinking about and fostering digital card management — including, for example, devising apps and services that work well with the limited real estate (aka screen size) available on phones, something that comes relatively easier to Google and Apple.

“You’re challenged to show consumers something they interact with every day,” Ahlawat said.

Using cards is more complex than just managing checking and savings accounts online. Thus, successful banks have shifted the design of mobile banking apps beyond the confines of simply tracking spend.

Spotlighting the value of added services wrapped around financial products, a bank could offer a button that helps users populate forms tied to travel — the bank can be notified in advance that it needs to honor payments from a certain country (and keep cards open) across certain dates.

“You’re leveraging the capabilities of the phone,” Ahlawat noted. “Banks are still able to use their legacy systems to honor that notification, but the user experience is far superior.”

For now, the top issuers are already thinking about their customer experience, and with tech giants in the card space, the battle is joined on two fronts.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.