Apple has struggled with innovation since Jobs relinquished the helm at the company. There’s no doubt that current-CEO Tim Cook is a better operator – that’s why Jobs promoted him to serve as his COO – but entrepreneur and savant he is not.
Apple’s new foray into the credit card space is just another example showing us how little innovation they apparently have left.
Let’s first talk about what Apple has at its disposal.
Apple has current payment information on an estimated 800 million people. Per a 2014 article, Tim Cook revealed that Apple had 800 million iTunes subscribers, most with ties to a credit card on file. Associated with the credit cards are contact information for nearly 1B consumers.
Apple has built massive merchant distribution in its drive to make Apple Pay happen. Apple keeps a list of major retailers that accept this payment method but there’s obviously a really long tail of merchants who don’t have flashy logos. Industry analysts estimate that more than 4 million merchants accept Apple Pay. Just to give that number context, First Data, the largest merchant acquirer, accepts payments on behalf of 6 million merchants globally. In other words, getting to 4 million merchants is no small feat.
Apple has an absurd amount of cash on their books. $245B to be exact. If we look at the top-15 banks in the country, Apple would come in at number 14 with their own balance sheet. That’s absurd: the assets banks claim are the deposits of their members, not their own deposits. Apple could be the country’s 14th largest bank without any customers – crazy!
Now that we’ve gotten those points out of the way it should be obvious where we’re going with this. Apple has access to a large number of consumers. Apple has access to a large number of merchants. Apple has copious capital to underwrite the two sides in any sort banking initiative they desire.
But they didn’t do that.
Instead what we got was another shitty credit card with zero value. Apple can market it however they desire, but the reality is that it’s a glorified Mastercard with an Apple logo.
Imagine if the people at Apple had any balls.
First, they’d start the process of becoming a bank. They would secure all the (useless) certifications required to be in the lending and credit business.
Second, they’d go to their Apple Pay merchants and explain that they would be launching a new credit card that came with drastically reduced interchange – let’s just call it a flat 1%. Merchants would sign up for this immediately, especially since we’ve discovered that consumers will actually use credit cards as opposed to mobile payment apps. These merchants would be glad to co-market the card at their stores since it would decrease their needless processing costs overnight.
Third, Apple would launch the credit card directly to consumers, leveraging the contact information they already have stored in iTunes. As Apple would already be a bank, they would be able to directly underwrite consumer risk themselves, being the issuing bank, acquiring bank, and network all in one stop.
Over time Apple would be able to watch the data it’s collecting to create a myriad of financial products which would far outweigh the revenues from interchange, and the card rate would drop to 0%. Boom.
And just like that, actual value is created, and an industry is transformed for the better.
There are numerous companies trying this approach with cryptocurrency, but they don’t have the distribution to pull it off. Apple has an opportunity to really change an industry for the better.
Will they?
Jordan – If you were working inside Apple’s executive suite, you’d get a multi-million dollar bonus for pushing this approach to launch. Doesn’t seem fair; but then it’s mind-blowing what an opportunity Apple is missing. REALLY mind-blowing. In theory, they could open both credit issuance (probably partner) and debit issuance. They could even be the first to get online micro-payments finally off the ground. Merchants would push consumers to use the card because of the lower fee rates. Consumers would welcome a commerce player with a genuine reputation for data privacy and protection. The Interchange players would still be fat…but not happy.
I’d probably owe Apple money to give them the gameplan
Do you think the layers of regulation associated with the finance industry is what is keeping them away? They probably don’t have the most ethical monetary practices and being under the detailed eye of the FDIC would bring up more issues than solving a horrible industry. I hope they can first just fist Siri.
I don’t know – frankly I’m ignorant on what that would entail.