Among the most tangible announcements at Apple’s services event, last week was also its most interesting: a credit card, aptly called the Apple Card, with both a physical and digital version that gives you up to 3 percent cash back. The product is a way for the company to sell its brand on another everyday object you likely already own.
Preferring traditional ways over innovation: So not Apple-like
In this case, Apple Inc. has decided that it needs a conventional product, even one with the dubious moral baggage of a credit card, to promote Apple Pay. So just as Apple sees competing with Netflix and large cable companies as part of its future by creating its TV shows and paying top dollar for Hollywood talent, the company no longer sees upending the status quo in payments as a viable path forward for Apple Pay.
“I think the strange optic here is that credit cards are not necessarily innovation in payments, even with better rates and loyalty,” says Rivka Gewirtz Little, a global research director at analyst firm IDC who specializes in payments. “So, to see a big tech firm, which hangs its hat on innovation, go such a traditional route – that’s what I think is a bit odd here. I’d like to see Apple get more innovative in transforming the way we pay.”
The consistent drop in sales over the years
For years, as the iPhone has become ubiquitous and sales have started to slow, Apple has tried to emulate the paradigm-shifting success of the App Store and iTunes before it by barreling its way into TV and film, mobile payments, and news. But time and again over the last half-decade or so, Apple has run into the hard economic and logistic reality of trying to change industries that are far less malleable than mobile software and music.
And while Apple Pay may be a bold vision of the future, it’ll likely be years before contactless digital payments become truly mainstream in the US. In the meantime, Apple wants to sell you the benign and the boring — a credit card, a cable package, a magazine subscription — in hopes it can make its software and services as intrinsic a part of everyday life as its smartphone. Changing industries from the ground up is no longer Apple’s playbook, especially as it plays catch-up to companies like Netflix and Spotify.
Ensuring privacy: Apple’s most effective approach to marketing
To get customers actually to sign up, Apple is leaning heavily on its privacy-first approach. Effectively, the company wants to be the only tech company you trust. Onstage yesterday, CEO Tim Cook said the card would not collect data on your transactions, and Apple will not let its partner bank, Goldman Sachs, sell any data to third parties. But of course that begs the question: how does it make money, and without those usual stipulations, is Apple not merely banking on users falling into debt and pocketing the insurance money they’re forced to pay for years to come?
The goal may not be to turn a profit, at least not on the service itself. It all comes back to Apple Pay. The reason Apple made a credit card in the first place is to spur adoption of Apple Pay and to create a digital wallet that can be used not just in the real world, but also inside an iOS ecosystem that is increasingly being peppered with new, for-pay services.
Through its incentives, the company is creating a system where you’ll shop in the real world at Apple Pay partners for extra cash back bonus, switch your App Store credit card to an Apple one with an even better bonus, and rely only on the physical card for when you absolutely have to. And all of it is underpinned by Apple’s privacy pledge and relatively stable security track record, as well as the luxury status symbol provided by an Apple-branded piece of titanium, with its number-less design that non-coincidentally makes it easy to gloat about on social media.
The Real Deal
That may be enticing enough to get younger users, especially those without large stockpiles of reward points and years of credit built with existing banks and cards, to turn to Apple as their primary credit provider. Credit cards, especially those underwritten by Goldman Sachs and backed by dinosaurs like MasterCard, are not the most innovative products. Neither are TV bundles or magazine subscriptions.
But Apple’s services strategy, similar to its hardware strategy in the Tim Cook era, is not about being first, but about providing an Apple-centric option that’s good enough to keep you hooked in and uninterested in ever leaving.