Apple Card raises pressure on banks — and fintechs

The new Apple Card wasn't just one product of many announced at the Steve Jobs Theater on Monday — it was the glue that binds all of Apple's new services together.

The Card's 3 percent cash-back reward tier applies only to Apple purchases, making the new Apple TV+ stand out in a growing sea of monthly media streaming services including Amazon Prime, Netflix and Hulu.

“We want to take the Apple Pay experience further to another fundamental method of payment,” Apple CEO Tim Cook said during the event. "We envision a future in which every payment is made this way."

The Apple Card wouldn't be as compelling if it was used only for the occasional Apple Store purchase or in-app microtransactions. In launching multiple media services alongside the new card, Apple created a digital ecosystem that will pump a steady flow of monthly payments into the digital card account.

David Paul Morris/Bloomberg

In this way it's not only a threat to banks but to fintechs as well. Many fintechs saw the data-sharing benefits of Europe's Payment Services Directive, PSD2, as a way to build their own ecosystem around banks' payment products. If Apple's new services take off, it will have a meaningful head start on news, TV and gaming subscription services.

Even for consumers who don't want to pay a monthly fee for media, news and gaming services, the Apple Card piles on features to make it the top-of-wallet choice. The card bundles instant issuance, loyalty, accounts, social P2P transfers, contactless mobile payments and personal financial management as part of the same relationship and user experience.

These services exist at hundreds of banks and fintechs, but usually not in the same product — and rarely come with incentive pricing for movies, TV and games.

"What makes it hard for financial institutions to compete with this is Apple Pay is primarily on the iPhone, and will be able to give instantaneous feedback ... not just for each transaction but also for where you are spending and with categories," said Heidi Liebenguth, a payments consultant with Crone Consulting.

This is more of a benefit for users than for Apple. Jennifer Bailey, vice president of Apple Pay, said Apple can use machine learning and map data to rewrite the credit card statement into plain English, but that Apple itself doesn't get this level of visibility.

"Apple doesn't know what you bought, where you bought it or how much you paid for it," Bailey said. Apple's spend-tracking tools use "on-device intelligence, not Apple servers," she said.

Apple Card, which includes incrementally larger cash-back offers for using Apple Pay, or making purchases at Apple stores or in the app store, will almost automatically drive traffic to the new services Apple announced Monday. In addition to its streaming content service, Apple also introduced several new initiatives, including a personalized mobile-optimized aggregated subscription service for more than 300 magazines and newspapers; and a gaming service that's an alternative to Google's Stadia.

"It is to banking what the iPod was to the music industry, what the iPhone was to wireless carriers and iPads were to the laptop industry, or what Uber is to taxis," Liebenguth said.

Goldman Sachs will issue Apple Card, which will be usable over the global Mastercard network. Goldman Sachs' Apple card collaboration has existed for months, and gives the financial institution a way to move beyond its traditional role as an investment bank and wealth management partner. Apple was seeking to replace a similar partnership it had with Barclays that never came to fruition. Because none of the companies disclosed any details last year, it was never quite clear when, or if, Apple and Goldman could deliver on cobrand payment card.

During Monday's presentation, Apple boasted about low fees, though it did not provide specific pricing for the Apple Card and some of its services. “We’re lowering rates, creating compelling rewards and providing security and privacy,” Cook said.

Using the Mastercard network would potentially open the card to interchange rates. Mastercard did not answer questions about fees.

"The digital first card ... also opens the pathway to opening up new ways to pay for things that you didn’t think possible,” Craig Vosburg, president of North America for Mastercard, said in an emailed statement, citing TSYS research that found 68 percent of people who have loaded a debit or credit card to a mobile wallet said they expect to make at least half of their in-store purchases using a digital wallet within two years.

Vosburg said Mastercard is also integrating contactless technology in 20 transit systems in the U.S., including New York, in the next few years, opening Apple Pay and Apple Card to ticketing and payments for subways and buses.

Apple Pay's merchant acceptance is also growing, and now stands at greater than 70 percent in the U.S., Cook said in his presentation.

These new services come as Apple battles a relative slump in iPhone sales, making services and enhancements to Apple Pay a key part of the company's plans going forward.

Other services, such as Apple TV, can introduce more mobile and recurring payments through that system. Consumers already make numerous purchases off Apple TV, either movie rentals or purchases, or other apps and streaming services — all through their Apple ID and linked payment card as subscription revenue for traditional cable television declines.

"Apple expects 5G to negatively impact existing cable providers," said Tim Sloane, vice president of payments innovation at Mercator. "Apple wants to have a solution for the growing wave of cord cutters enabled with 5G deployment."