Back in 2014, Apple CEO Tim Cook went on stage and began to bash the physical credit card this inconvenient and insecure way of making payments. Of course, this is right before they went on to propose their solution to that problem. And Apple Pay, which is supposed to make payments, way more convenient, and we stickier than ever.
But fast forward five years later and at the very same company and the same CEO introduces the Apple card, 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 in Apple’s overall strategy with an apple cart, which almost seems like a step backward for Apple, considering the long-term vision of replacing the wallet.
At first glance, it’s easy to say, 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. But the thing about that argument that doesn’t necessarily sit with me is an apple cart is very different from your traditional credit card in that it nudges you to pay less interest instead of more, which is opposite to the revenue model of a credit card.
There are no late payments, there are no annual fees. And even if you are late on a payment, you’re EPR. Your race 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 they’re splitting their revenue with the issuing bank and Goldman Sachs, it generates an amount of revenue, but probably a relative drop in the bucket compared an 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. So when you use a physical Apple card, you get one percent cashback on all your purchases.
And the effect for Apple is to use your physical credit card. Not only do associate Apple with every transaction, but it 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 2 extra points back when you use Apple Pay instead of the card itself.
So 1 percent cashback when you use the card, two percent cash back when you use Apple Pay on your iPhone or Apple Watch, 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 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 cash back 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 2 extra points back, eventually that original gas station will start losing business and will almost be forced to invest 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 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 another way for them to finish 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 likely to do that. I’m likely to remember which retailers or restaurants or businesses 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.
And, you know, speaking of the 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 giving you that cashback on a daily basis. And most credit card companies, regardless if they give you one or 1.5 or 2 percent cash back, you have to wait a while to get the wait until your next statement in order to be able to get cashback 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 cash back 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 an 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 1-3rd 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 first thought, like, what is Apple doing? But after looking at it, it’s once they’re back in tech for Apple to be able to take two steps forward the Trojan horse for the wallet, 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 into buying iPhones. Right. Apple Pay only works on Apple devices and Apple’s already taken over one of your pockets.
So that way they could slip in their air pods or their upcoming 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 locked into the ecosystem than I already am. That is it for me in this article