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Hey Issuers, Big Tech Is Coming. Here’s How to Compete
First Apple revolutionized the personal computer industry
with the iMac. Then Apple redefined the cellphone industry with the release of
the iPhone. Now, Apple has set its sight on the payments industry.
The tech giant released its first credit card—the Apple
Card—on August 20, with Goldman Sachs as the issuing bank. The card was designed
to be primarily used with Apple Pay on Apple devices, but the tech giant did
release a flashy titanium physical card.
While many companies have released their own credit cards,
Apple’s approach has drawn much buzz due to the card’s lack of fees, quick onboarding
process, and sleek mobile app experience. For its part, Apple marketed the card
with the line “Created by Apple—not a bank,” signifying how it’s seeking to
disrupt the banking landscape.
To better understand what the Apple Card brings to the payments
space, and how issuers should respond, PaymentsJournal sat down with Bharghavan
Vaduvur, CEO of OnDot, and Aaron McPherson, VP of Research Operations at
Mercator Advisory Group.
Vaduvur and McPherson discuss the importance of the Apple
Card’s emphasis on a mobile app, the potential impact on small banks, and how
issuers can stay competitive against the global tech giant.
It’s not just a store
card for Apple Music or the App Store
One of Apple’s defining characteristics is its focus on the
customer experience. Now the company is applying this to the payments industry.
“This is really the first time a tech giant that anchors its
entire existence on understanding the consumer experience is getting into a
payment card issuer space,” said Vaduvur. Because of this, Vaduvur believes
that Apple’s foray into payments is a big deal.
It has the potential to redefine how customers interact with
their payment cards, he said, regardless of how much of a market share Apple
eventually commands.
McPherson identified specific ways in which the card is
changing the relationship between cardholder and card. First, the application
process for getting the card is seamless and quick. Second, the card is issued
instantaneously and goes straight into the digital wallet. This means that
within minutes, a customer can get approved for the card and start using it
right away.
The other notable aspect of the Apple Card is the
mobile-first orientation. McPherson pointed out that users only get 1% rewards
when they use the physical titanium card, whereas the rewards are 2% or higher
if they use it as a tap and go transaction or the “Buy with Apple Pay” button
on e-commerce sites.
However, McPherson did point out some weaknesses of the
card. When customers make a purchase, they get a percentage of the purchase
back in what’s called Daily Cash. However, McPherson noted that this Daily Cash
largely stays within Apple’s ecosystem because transferring it to a bank is a
cumbersome process.
You can really only use Daily Cash seamlessly within the App
Store, in in-app purchases, or for iTunes transactions, he said. Moreover, the
best rewards come when you buy Apple products, or use the card with one of the
company’s merchant partners, such as Uber. Therefore, in some ways, the Apple
Card functions as a store card of sorts for Apple.
He also noted that while the Apple Card app does have nice
spend analysis tools, it currently doesn’t allow users to export the data,
making it hard for users to use the analytic tools of their choosing.
Vaduvur said that while this may be the case, it’s largely irrelevant
since most people are perfectly content with Apple’s default spend analysis
tools. What’s more important is the overall user experience, and in this
regard, Apple is nailing it. The Apple Card is more than just a store card,
it’s changing mobile wallets in general.
The Apple Card is
putting pressure on the banking industry to respond
From Vaduvur’s perspective, the Apple Card has established
the new normal.
For too long, the banking industry has struggled to
understand typical consumer behavior and cater towards it, said Vaduvur. But
Apple’s approach puts the consumer experience front and center.
It begins right away as Apple has made acquisition
spectacularly simple. It’s never been easier for a user to get approved for a
card and start using it right away. And once approved, the mobile experience is
sleek and intuitive, reflecting Apple’s consumer-focused approach to product
design.
In contrast, many financial institutions have clunky mobile
apps that are so packed with features that consumers often struggle to use
them.
As an example, said Vaduvur, if you lose your card, and you
want to turn it off, you might have navigate through a web of features and
screens before you can do so. This is because banks simply haven’t thought
enough about convenience and clarity when designing feature functionality.
“Issuers have to respond,” said
Vaduvur. He said banks both large and small are threatened, but smaller banks
may feel more pressure. For example, nobody is going to stop using their Bank
of America card tomorrow, he said, but smaller banks may be displaced by Apple
unless they’re proactive.
McPherson agreed, saying that “smaller financial
institutions are pressured to match the mobile experiences and online
experiences provided by the large issuers.” However, smaller institutions have
an advantage in that their development and decision making times are typically
much shorter, enabling them to innovate faster than larger banks.
How to compete with
the Apple Card
Both McPherson and Vaduvur were optimistic about traditional
issuer’s chances.
One immediate point that’s worth considering is that Apple has
a minority market share in the United States, and even less traction across the
world. “All of this stuff doesn’t work on Android,” said McPherson. He
explained that if you’re an issuer, you want a solution that works on both
Android and iOS operating systems.
In addition, Apple’s approach to its user-friendly card app
can be easily replicated. “Apple’s marketing message is great, but I think
issuers who’ve traditionally not thought of themselves as being designer gurus
can now actually innovate and create,” said Vaduvur.
This is because it’s much easier for “fin to add tech than
for tech to add fin,” he explained. People already trust banks with their money
and banks now just have to design better banking applications.
Financial institutions need to focus on improving their
mobile apps, making them straight-forward and easy to use. They also need to
put the consumer front in center.
For example, one feature that banks should offer is that
when a consumer’s card is declined, the bank can, if the consumer is eligible,
push them an offer for overdraft protections in real-time via the card app.
Functionality like this turns a negative consumer experience into a positive
one, and builds customer loyalty to the issuer.
Another area to improve is in cleaning up transaction data.
Too often, consumers will get confused by the transaction information they’re
presented with. For instance, if you make a purchase at a vending machine, it
may appear on the bill as a purchase made at a random company, in a random
state.
One of the appeals of the Apple Card is that they present
the user with cleaned up data that avoids issues like this. Not only will the
consumer be happier, the issuer will save money as the number of chargebacks
and customer service calls decrease.
Many fintechs, including OnDot, can partner with FIs to aid in
offering functionality like this in FIs’ card apps.
“We’ve launched Card App,
which is a product that provides Apple Card-like capabilities to financial
institutions, on top of existing payment,” said Vaduvur.
By using products such as Card App, Vaduvur believes that
FIs can not only emulate Apple but actually leap-frog the tech giant.
The post Hey Issuers, Big Tech Is Coming. Here’s How to Compete appeared first on PaymentsJournal.
View all episodes
By The PaymentsJournal PodcastFirst Apple revolutionized the personal computer industry
with the iMac. Then Apple redefined the cellphone industry with the release of
the iPhone. Now, Apple has set its sight on the payments industry.
The tech giant released its first credit card—the Apple
Card—on August 20, with Goldman Sachs as the issuing bank. The card was designed
to be primarily used with Apple Pay on Apple devices, but the tech giant did
release a flashy titanium physical card.
While many companies have released their own credit cards,
Apple’s approach has drawn much buzz due to the card’s lack of fees, quick onboarding
process, and sleek mobile app experience. For its part, Apple marketed the card
with the line “Created by Apple—not a bank,” signifying how it’s seeking to
disrupt the banking landscape.
To better understand what the Apple Card brings to the payments
space, and how issuers should respond, PaymentsJournal sat down with Bharghavan
Vaduvur, CEO of OnDot, and Aaron McPherson, VP of Research Operations at
Mercator Advisory Group.
Vaduvur and McPherson discuss the importance of the Apple
Card’s emphasis on a mobile app, the potential impact on small banks, and how
issuers can stay competitive against the global tech giant.
It’s not just a store
card for Apple Music or the App Store
One of Apple’s defining characteristics is its focus on the
customer experience. Now the company is applying this to the payments industry.
“This is really the first time a tech giant that anchors its
entire existence on understanding the consumer experience is getting into a
payment card issuer space,” said Vaduvur. Because of this, Vaduvur believes
that Apple’s foray into payments is a big deal.
It has the potential to redefine how customers interact with
their payment cards, he said, regardless of how much of a market share Apple
eventually commands.
McPherson identified specific ways in which the card is
changing the relationship between cardholder and card. First, the application
process for getting the card is seamless and quick. Second, the card is issued
instantaneously and goes straight into the digital wallet. This means that
within minutes, a customer can get approved for the card and start using it
right away.
The other notable aspect of the Apple Card is the
mobile-first orientation. McPherson pointed out that users only get 1% rewards
when they use the physical titanium card, whereas the rewards are 2% or higher
if they use it as a tap and go transaction or the “Buy with Apple Pay” button
on e-commerce sites.
However, McPherson did point out some weaknesses of the
card. When customers make a purchase, they get a percentage of the purchase
back in what’s called Daily Cash. However, McPherson noted that this Daily Cash
largely stays within Apple’s ecosystem because transferring it to a bank is a
cumbersome process.
You can really only use Daily Cash seamlessly within the App
Store, in in-app purchases, or for iTunes transactions, he said. Moreover, the
best rewards come when you buy Apple products, or use the card with one of the
company’s merchant partners, such as Uber. Therefore, in some ways, the Apple
Card functions as a store card of sorts for Apple.
He also noted that while the Apple Card app does have nice
spend analysis tools, it currently doesn’t allow users to export the data,
making it hard for users to use the analytic tools of their choosing.
Vaduvur said that while this may be the case, it’s largely irrelevant
since most people are perfectly content with Apple’s default spend analysis
tools. What’s more important is the overall user experience, and in this
regard, Apple is nailing it. The Apple Card is more than just a store card,
it’s changing mobile wallets in general.
The Apple Card is
putting pressure on the banking industry to respond
From Vaduvur’s perspective, the Apple Card has established
the new normal.
For too long, the banking industry has struggled to
understand typical consumer behavior and cater towards it, said Vaduvur. But
Apple’s approach puts the consumer experience front and center.
It begins right away as Apple has made acquisition
spectacularly simple. It’s never been easier for a user to get approved for a
card and start using it right away. And once approved, the mobile experience is
sleek and intuitive, reflecting Apple’s consumer-focused approach to product
design.
In contrast, many financial institutions have clunky mobile
apps that are so packed with features that consumers often struggle to use
them.
As an example, said Vaduvur, if you lose your card, and you
want to turn it off, you might have navigate through a web of features and
screens before you can do so. This is because banks simply haven’t thought
enough about convenience and clarity when designing feature functionality.
“Issuers have to respond,” said
Vaduvur. He said banks both large and small are threatened, but smaller banks
may feel more pressure. For example, nobody is going to stop using their Bank
of America card tomorrow, he said, but smaller banks may be displaced by Apple
unless they’re proactive.
McPherson agreed, saying that “smaller financial
institutions are pressured to match the mobile experiences and online
experiences provided by the large issuers.” However, smaller institutions have
an advantage in that their development and decision making times are typically
much shorter, enabling them to innovate faster than larger banks.
How to compete with
the Apple Card
Both McPherson and Vaduvur were optimistic about traditional
issuer’s chances.
One immediate point that’s worth considering is that Apple has
a minority market share in the United States, and even less traction across the
world. “All of this stuff doesn’t work on Android,” said McPherson. He
explained that if you’re an issuer, you want a solution that works on both
Android and iOS operating systems.
In addition, Apple’s approach to its user-friendly card app
can be easily replicated. “Apple’s marketing message is great, but I think
issuers who’ve traditionally not thought of themselves as being designer gurus
can now actually innovate and create,” said Vaduvur.
This is because it’s much easier for “fin to add tech than
for tech to add fin,” he explained. People already trust banks with their money
and banks now just have to design better banking applications.
Financial institutions need to focus on improving their
mobile apps, making them straight-forward and easy to use. They also need to
put the consumer front in center.
For example, one feature that banks should offer is that
when a consumer’s card is declined, the bank can, if the consumer is eligible,
push them an offer for overdraft protections in real-time via the card app.
Functionality like this turns a negative consumer experience into a positive
one, and builds customer loyalty to the issuer.
Another area to improve is in cleaning up transaction data.
Too often, consumers will get confused by the transaction information they’re
presented with. For instance, if you make a purchase at a vending machine, it
may appear on the bill as a purchase made at a random company, in a random
state.
One of the appeals of the Apple Card is that they present
the user with cleaned up data that avoids issues like this. Not only will the
consumer be happier, the issuer will save money as the number of chargebacks
and customer service calls decrease.
Many fintechs, including OnDot, can partner with FIs to aid in
offering functionality like this in FIs’ card apps.
“We’ve launched Card App,
which is a product that provides Apple Card-like capabilities to financial
institutions, on top of existing payment,” said Vaduvur.
By using products such as Card App, Vaduvur believes that
FIs can not only emulate Apple but actually leap-frog the tech giant.
The post Hey Issuers, Big Tech Is Coming. Here’s How to Compete appeared first on PaymentsJournal.