All The Fintech - 8.18.19 - Apple Card playing the long game

Hi everyone! If the format looks new, it’s because I recently moved over to Substack as I was having issues with my previous newsletter app, so here’s to hoping that VC money gets put to good use :)

In other news, I finally got an invitation to apply for the Apple Card and wanted to put some quick thoughts on paper, especially as I’ve been reading a lot of other interesting takes.

Quick thoughts:

1) Mobile only signup flow - This is the first time I’ve been able to apply for a name brand credit card via mobile end to end and although the internet apparently wasn’t too impressed, I actually think Apple + Goldman have set a new standard for mobile onboarding for a financial product. Some things I noticed during the onboarding flow - no need for full social security, just a confirmation of last 4; dynamic KYC depending upon what information they were able to pull (e.g. not all users needed to take a picture of a physical ID); name, address, email already pre-filled from iCloud account; instant underwriting + provisioning of a virtual card in minutes.

2) First class mobile experience - To my knowledge, there’s actually no web interface for the card so the only way to manage payments are via the wallet or over phone if necessary. This is super interesting - a truly mobile first / only approach towards financial services. This fits into Apple’s strategy to continue to push adoption of mobile payments, but will be curious to see if Apple does end up releasing web features - maybe something built into Safari? They’re also real subtle on trying to make the Apple Card your default payment mechanism with specific call to actions + making their wallet experience first class vs everyone else. Apple + GS have built a first class product experience combing hardware, software, and plastic (I guess metal now) and I think there’s significant demand for this, particularly with subprime / near prime financial products.

3) Apple Card is to Apple as Amazon Prime is to Amazon - I don’t expect the card to be meaningful in regards to revenue for Apple for many years, rather it’s all about lock-in into the ecosystem. If users adopt the Apple Card as their primary payment mechanism, it makes it literally impossible to switch from an iPhone to any other mobile device. I wouldn’t be surprised to see a lot more tech companies attempt to accelerate their payments / fintech strategy as a result - everything becomes payments with a large number of users, unique platform, and long enough time horizon.

4) It’s not about the rewards - I’ve read a ton of tweets stating how the card isn’t that great since the cashback doesn’t compare with cards like the Chase Sapphire Reserve, Amex Platinum, etc. I think this misses the point - I would have been extremely surprised if Apple + GS immediately came out with an aggressive cashback mechanism out of the gate especially since almost everyone is eligible for the card. Cards with 2% cash back and above tend to be for people with good credit - cards such as Citi Cashback, CapOne Savor, etc all generally require a credit score of ~700+. The Apple Card has an extremely wide band of credit that they’re accepting - subprime, near prime, and prime all with different credit limits + APRs.

Since they’ve already removed most of the fees that subprime cards often view as profit centers, Apple + Goldman probably already has significant exposure trying to making profit off interchange + interest vs balancing default rates across such a wide spectrum. I wouldn’t be surprised to see the rewards structure change over a longer time for different demographics once GS is able to build out their risk curve. The first card I was ever able to get was a Discover Charge card since I had no credit history and that came with 1) no cash back, 2) a poor product experience (I still don’t get what I should be generally paying…), 3) low merchant acceptance - the Apple Card is 100x superior to anything being offered in that space.

5) Low acquisition cost - There have been some articles that state that the CAC is ~$350 per card and to be honest, I would question that data point. Apple + GS don’t need to do any direct mail, online advertising, etc - all they need to do is send a notification via your Wallet. There’s never been a financial product that has had the ability to get such wide distribution on day 1 and that’s what makes the card extremely exciting. The ability to own the experience end to end with such scale is very interesting…

6) Instant cash back moving liability off balance sheet faster - Unclaimed rewards are increasingly becoming a cause of concern for large credit card programs. For example, JPMorgan’s credit-card holders had accrued $5.8 billion in rewards they had not yet redeemed as of Q3 2018 and a lot of this is due to the product experience (as well as users stashing points for different experiences). By keeping the cash back experience simple and instant, there’s almost no reason to hoard points on the Apple Card - it’ll be interesting if there will be more tie-ins to Apple Cash to try and drive further usage of Apple’s P2P payments too.

Anyways, let me know what y’all think - if I’m totally off base, other viewpoints I missed, etc - keep the feedback coming! And look forward to the next one where I attempt to go deeper on Strong Customer Authentication aka the reason why processors and merchants are stressing out over in Europe…