Back in 2014, Apple CEO Tim Cook went on stage and began to bash the physical credit card as this inconvenience and insecure way of making payments.
Of course, this is right before they went on to propose their solution to that problem. And the Apple Pay, which is supposed to make payments, way more convenience and we more stickier than ever.
But fast forward five years later and at the very same company and the same CEO introduces the Apple card, a shiny titanium and well-designed credit card that is still very physical.
Now, to be fair, the physical card is technically optional. You can have it only on your iPhone using Apple Pay. But I think a lot of the appeal for the Apple card, when you stack it up against all the other credit cards out there, is the flashy titanium. Right.
And ultimately, I think it plays a big part of Apple’s overall strategy with the apple cart, which almost seems like a step backwards for Apple, considering their long term vision of replacing the wallet.
Which begs the question of why? Why would Apple introduce the apple cart?
At first glance, it’s easy to say that, well, Apple is increasingly moving towards becoming a services business.
IPhone sales have been on the decline for a number of quarters, and it makes sense for Apple to diversify its revenue stream by having more and more services to offer. But the thing about that argument that doesn’t necessarily sit well with me is the apple cart is very different from your traditional credit card in that it actually nudges you to pay less interest instead of more, which is opposite to the revenue model of a credit card.
There is no late payments, there’s no annual fees. And even if you are late on a payment, you’re EPR.
Your interest rate doesn’t skyrocket like the way it does with most other credit cards.
So while Apple will undoubtedly make some revenue from these credit cards with the interest that they do charge, when you consider that they’re also splitting their revenue with the issuing bank and Goldman Sachs, it might still generate a significant amount of revenue, but probably a relative drop in the bucket compared to the Apple cash machine.
So then what’s the real reason that Apple is going with the Apple card, which seems to be the opposite of their stated long term vision of replacing the wallet? The answer really comes down to that same 2014 press conference that Apple held in Apple Pay.
Like Apple does want to replace your wallet. But what they’ve learned is Apple pay alone isn’t enough to do the job.
Some surveys suggest that even today, less than one third of iPhone users have even tried Apple Pay, let alone use Apple pay on a daily basis. So clearly, like the tech itself, wasn’t enough to change consumer behavior.
When you can’t change consumer behavior by offering a more convenient option, the next option is to incentivize them.
And that’s exactly what the apple cart is doing. So when you use a physical Apple card, you get one percent cashback on all your purchases.
This is no different from a lot of the other credit cards out there.
And the effect for Apple is every time you use your physical credit card. Not only do you associate Apple with every transaction, but it also acts as a visual cue reminding you to use Apple Pay either on your watch or on your iPhone.
Why would you want to do that? Well, this same Apple card credit card gives you two extra points back when you use Apple Pay instead of the card itself. So one percent cash back when you use the card, two percent cashback when you use Apple Pay on your iPhone or Apple Watch, which inevitably is going to lead people to start using Apple pay way more often.
I mean, they’re financially incentivized to do so. Not only will it change the behavior of the people who have the Apple card, but it might also change the behavior of those merchants who still don’t accept Apple pay, of which there’s still plenty.
How? Well, simple example. Let’s say there’s a gas station that you frequent and it’s where you fill up your car all the time.
If you get the Apple card and you know that you can get two percent cashback when you use Apple Pay and then you find out that that gas station doesn’t support Apple Pay, maybe you go across the street to the other gas station that does.
And if enough people start doing that in order to get two extra points back, eventually that original gas station will start losing business and will almost be forced to invest in the tech to start accepting Apple pay in order to win that business back. And what this will effectively do is create a better feedback loop with using Apple Pay.
Now more places are going to start Apple Pay. There’s less friction, right? Right now, there’s a lot of friction with Apple Pay where you’re not sure if a retailer accepts you yet to ask the question.
Sometimes it’s easier, like while they’re ringing you up. You play your credit card and by the time they’re done, you stick in the little chip reader and you’re done versus the other way for them to finish ringing you up and then asking them if they accept Apple pay only to get rejected. That doesn’t feel good.
Nobody likes to be told no. If you’re incentivized, though, to ask. Right.
Look, I know if I know that I may get double the money back. If I just ask a simple question, I’m more likely to do that. I’m more likely to remember which retailers or restaurants or businesses actually accept Apple Pay.
And I’m more like. Start avoiding the ones that don’t. So merchants are gonna be pushed to adopt Apple Pay. I think consumers are going to start using up to be more.
I think the feedback loop is going to get stronger. And, you know, speaking of feedback loop, one thing that Apple is doing that’s really smart with the Apple card is not only are they incentivizing you to use Apple pay, but they’re also giving you that cashback on a daily basis.
And most credit card companies, regardless of if they give you one or one point five or two percent cashback, you have to wait awhile to get the wait until your next statement in order to be able to get that cash back with the Apple card.
You’re getting it literally the next day. So if you go out and you spend like 250 bucks on something and you use Apple Pay, you get two percent cashback on that. That’s five dollars.
Meaning the very next day, you can literally go to your coffee shop, use Apple again and have a free cup of coffee on Apple. Now, that’s a very short feedback loop.
And when you look at addiction or changing behavior, the shorter the feedback loop is, the more addictive that behavior becomes.
So I think the apple cart for the people who do sign up, you have to have an iPhone in order to sign up. But for the people who do, ultimately, I think it’s really going to start changing things for Apple because again, less than one third of people who have iPhones have even tried Apple Pay and even less report that they used to Apple pay on their last transaction.
I think the people who get the Apple card are going to start using Apple Pay on a daily basis.
Ultimately, that’s going to start changing the businesses that accept Apple Pay and even the people who don’t have the Apple card will start seeing that hype everywhere except Apple Pay.
And now it removes the friction of even having to ask. I think it’s a really, really smart move.
I first thought, like, what is Apple doing? But after looking at it, it’s that once they’re back in tech for Apple to be able to take two steps forward as the Trojan horse for the wallet, it’s a it’s a nice shiny thing.
It’s a nice gift to the wallet that will ultimately end up killing it because one Apple wants a lock you in to buying iPhones. Right.
Apple Pay only works on Apple devices and to Apple’s already taken over one of your pockets. They want to take over the other one.
And the only way to do that is to get rid of the wallet. So that way they could slip in their air pods or their upcoming a headset. But what do you think? Are you guys interested in the Apple card? Does the status symbol that it gives you interest, do you or does it to us rewards interest you? Or are you thinking. No way.
I don’t wanna get any more locked into the ecosystem than I already am. Let me know down below in the comments anyways. That is it for me in this article.