As we close in on Apple’s next event, there are tons of stories bouncing around about the company’s future growth being in services. Right now, everything is centered around their coming subscription services in video and news, but a smaller story from earlier this week points to another service that could dwarf all others. According to the Wall Street Journal, Apple and Goldman Sachs are getting ready to team up on a credit card.
So what’s the big deal? It’s the quieter businesses that have been growth areas for Apple in recent years. Remember when people dismissed the Apple Watch? Now Apple’s has the only smartwatch ecosystem of any significance left standing. And while there are still plenty of niche players focused on fitness tracking, Apple is now slowly but surely using the Watch as a launching pad to help take the broader mobile Health field for themselves.
The tech press also made fun of the AirPods when they were announced, as well. Not so much anymore, but as an item with such a small price tag, they still get overlooked. Still, Apple’s little AirPods have become the fastest growing product the company has ever produced, so not so bad. They also point to a potentially big role for Apple in wearables in the future.
Here’s another “quiet” area of Apple that’s actually going gangbusters- Apple Pay. It made a big splash when released, but quickly faded into the background as more banks and retailers have slowly embraced it. A few days ago, Loup Ventures released a report with details on Apple Pay’s growing adoption and success. Apple Pay is now in use on over 900 million devices and has seen 135% growth over the last year. According to Loup Ventures, this recent growth is being fueled by Apple’s year-old peer-to-peer payment addition, Apple Pay Cash.
According to Loup’s numbers, there is also a lot of room for continued growth. While Apple Pay is still showing exponential gains a few years out, it is currently only enabled on 43% of iPhones. It is also interesting that Apple Pay seems to be growing faster abroad than in the United States. There is still plenty of legs left in Apple Pay as it stands right now.
However, Apple is not standing still with Apple Pay. Where are they headed next? Apple has been making a natural progression toward a much larger role in finance. They started with Apple Pay, which got them into the mobile payments game fairly early on. Then they got into peer-to-peer payments last year with Apple Pay Cash, which was a smart way to broaden the appeal of Apple Pay. Apple has done loans for their iPhone Upgrade Program through a third party for a few years now. Now, it looks like they are making the move to get into credit cards. Can you see where all of this is going?
I’ve been listening to Alex Lindsay talk about Apple cutting out the middle man and becoming a full-fledged bank on MacBreak Weekly for a few years now, and he isn’t the only one. It is looking like they may be on the right track. Before going there, let’s back up a bit and look at why a credit card will work for Apple. I’ve used several bank and credit card apps and websites over the years, and frankly, most of them suck. I have little doubt that Apple could make something better and more user friendly, or any other competent tech company, for that matter. However, what sets Apple apart from the rest of the major tech players is their stance on user data privacy. Users will be more apt to trust a company that isn’t playing fast and loose with their data, and there are few areas where this is more critical than personal finance.
So what does Apple get out of all this, both in the short and long term? First off, money. Potentially, a LOT of money. They already take a cut of Apple Pay transactions, but they will get an even bigger cut of credit card payments. Also, mobile payments aren’t for everyone. Neither are peer-to-peer payments. Each covers different user groups, but there are still plenty of people Apple isn’t reaching right now. A credit card is the next best step for Apple to appeal to those who prefer to stick with a more traditional approach to money management.
The second thing Apple can get from expansion to credit cards and beyond is an even closer relationship with their customers. This is exactly what Apple’s current growth in services is built on, and they can use that to help launch a credit card. However, if this works, getting into bigger role in the financial lives of their users is on a different level. It would bring Apple more money from purchases that have nothing to do with them, and would also help to feed their other services. It isn’t hard to imagine Apple offering discounts and services bundles to customers who use their credit card and other financial services. That could make for an interesting feedback loop.
In the long term, a credit card looks to me like the next logical step for Apple in a move to becoming a full-fledged financial services powerhouse. They may never become a stand-alone bank, and just stick with partnering with existing firms like Goldman Sachs, but I think it is obvious that they are going to keep expanding their financial services well beyond what they currently offer.
If Apple really wants to be a bank, they could pull it off. The company’s cash position and prestige put it in a unique position to become a big player in international finance. I don’t think they will go that far, but it’s an interesting possibility. Whichever direction they choose, if Apple could just bring a sizable percentage of their own device sales in-house, it would be a huge windfall for them. If they can get a number of their customers to use them as their primary money management platform, the profits could be massive.
I’m sure that Apple will make good money on their coming video and news offerings. They already bring in solid and growing profits with the Apple Store and Apple Music. But make no mistake, Apple’s biggest money making opportunity in services is with Apple Pay. What we have seen and what is likely coming soon in the form of a credit card is just the beginning.