Apple’s plan to increase the Apple Card and Apple Pay and win the payments war

Notes from FINTECH SNAR

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Bloomberg reports that Apple is launching an initiative codenamed “Breakout” to bring more financial services capabilities — such as payment processing, risk and fraud analysis, credit checking, and customer service — within the company. In accordance with Article:

“This payment will transform the company into an even greater powerhouse in financial services, based on an assortment that includes a credit card, peer-to-peer payments, the Wallet app, and a mechanism for merchants to accept credit cards from iPhone. Apple is also working on its own subscription service for devices and a Buy Now and Pay Later feature for Apple Pay transactions. .

Well, it helps explain why Apple acquired Credit Kudos, a UK-based open banking company that helps ease the lending process and improve loan underwriting efforts.

But why the broader push to bring in financial capabilities such as payment processing and customer service functions within the company? Tom Noyes, CEO and founder of Acc3pt and a longtime payments industry expert, predicts that with Breakout, Apple wants to:

  • Own the payments supply chain and reduce contact with any external vendors and partners with consumer data.
  • Launch the Buy Now, Pay Later (BNPL) feature to launch Apple Card in different markets.
  • Reduce network costs and improve integration into local schemes (eg, see ApplePay India’s UPI Integration).
  • Improve the consumer experience by deploying Apple Cash in every market, connecting to local systems, and enabling P2P payments on Apple phones.
  • Expand iPhone sales (with payments and financing) to include demographics and geographies with poor consumer credit.

Apple Plays Catch Up in the Platform War

Bloomberg cites its sources as “people familiar with the matter… who requested anonymity because the plans are not public.” Ha! Apple knows who these “people” are and will fire them immediately if you don’t You want These plans were announced.

The plans were leaked because Apple indicated to the market its intent to compete with commerce platforms such as Square, PayPal, Google and Klarna.

Apple’s penetration and control in the consumer market is incredibly strong, but until recently, it had little presence on the merchant side. Apple recognizes that it needs to follow a basic business model to protect and grow its market position.

Other trading platforms have been aggressively building two-sided capabilities for some time. Recent invasions include:

  • Partnership between Google/Square. In June 2021, Square announced a partnership with the Google Merchant Center to enable Square sellers to reach new customers through direct product listings on Google.
  • Stripe launches Stripe Treasury. In late 2020, Stripe Treasury announced that it could expand: 1) its partnership with Shopify to create Shopify Balance, a merchant checking account dedicated to independent businesses and entrepreneurs, and 2) a bank’s partner network to include Goldman Sachs and Evolve Bank as US partners to enable access Unified to banking capabilities via APIs.
  • PayPal’s acquisition of Honey. The 2019 acquisition gave PayPal the ability to offer consumers targeted, more personalized promotions as a way to gain new business and increase sales. Most importantly, it gave the payments company the opportunity to provide these capabilities to its merchant partners.
  • Klarna ecosystem growth over a decade. Stop thinking of Klarna as just a “buy now, pay later” company. Through acquisitions and investments, the company has become a commercial force.

Shortcomings of Apple Payments

In an article published in May 2021 entitled Apple Card has grown to 6.4 million cardholders thanks to womenI wrote:

“Credit card issuers compete on rewards (who gives the most, tailored to cardholders’ preferences) or the interest rate (for cardholders who typically roll card balances). Apple’s strategy is different: Apple competes for the ecosystem.

This is getting healthier every day. But Apple has some shortcomings in payments that are likely to affect the acceleration of the Breakout initiative:

  • Apple Pay delay. According to a Q1 2022 consumer survey that I provided for Cornerstone Advisors, nearly half (52%) of consumers with a checking account and smartphone make person-to-person (P2P) payments via mobile. Apple Pay’s share of this segment is 26%, in contrast to CashApp’s 43% share and PayPal’s penetration of 76%.
  • Apple Card growth suffers from anemia. After seeing Apple Card holders double in 2020, growth in 2021 has slowed considerably. Cornerstone’s survey found that the number of consumers with an Apple Card grew from 6.4 million at the beginning of 2021 to just 6.7 million at the beginning of 2022. This indicates that some (if not many) Apple Card holders have voluntarily or involuntarily discontinued their cards in year 2021.

Take Fintech Snark Tank: Apple is betting that the platform approach will help spur the growth of Apple Pay and Apple Card better (and possibly faster) than current marketing tactics.

Pay nerds revenge

A while ago, a colleague who worked at a bank for many years warned me:

“Try to avoid the people who pay the price – they’re really smart, but weird and cranky.”

You can judge for yourself if she’s right or not, but payments are becoming the most major competitive differentiator.

Marketing students learn about the “four elements of marketing:” product, place, price, and promotion. According to 4Ps creator Northwest Professor Philip Kotler:

“The marketing mix is ​​the set of controllable variables that a company can use to influence buyer response. The four variables help a company develop a unique selling point as well as a brand image.”

Payments have become an important component of the selling proposition and should be considered as a fifth of marketing.

Differences in payment terms—for example, distributing payments to a purchase over a period of time—or providing credit before or during a shopping process, marketers can influence consumers’ likelihood of purchasing.

Customizing payment terms is another way for merchants to influence consumers’ choice of products and providers – and it is commerce platforms that have the data, analytics and communication capabilities to make this happen.

Apple, Square, Klarna, and Shopify know that reducing friction and cost in the checkout process affects buying behavior. As a result, having a superior payments experience is critical to building the commerce platform for the decade of 2020.

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