At Studio Frankly, we have worked a whole lot for banks and insurance companies. Topics such as financial (family) planning, aiding people to make better financial decisions (such as through ING’s TFI initiative) and – more holistically – seeking to make the financial user experience easier, simpler and richer are often recurring.
Now that Apple introduced its new Apple Card last week, it’s making one of the biggest moves it has ever made in the last 10 years. This is big. This will scare banks much more than you might think. It’s not just a new way of paying, it’s an utter and direct attack on the entire financial consumer industry as we know it.
Why? Let’s look at 5 key reasons why:
- 1. Apple is a software company that is specialized in making seamless software and hardware solutions. Creating awesome interfaces, user experiences, apps and on-boarding experiences is exactly what the financial industry is struggling with. Where banks aim to become tech companies, Apple just did the opposite: they are a tech company moving into banking, completely rethinking the banking experience – and rightfully so.
- 2. Loyalty is a very big and hot topic in the industry. Getting returning, loyal customers is often considered as the holy grail of customer experience design. With Apple’s new loyalty program, it has a created an industry agnostic, overarching loyalty scheme that allows users to save 1, 2 or 3% on every purchase they make and receive as a hard cash back.
- 3. Insight in financial spending and planning. By grouping and color coding different spendings, you get direct feedback on the type of purchases you make most, greatly helping you to understand your biggest spending patterns. Next to this, they turn often indecipherable, random credit-card statements (e.g.: “10222 PAYMENT PROCESSOR X”) into understandable, geo-located statements and even allow you to pinpoint unrecognized or untrusted payments directly in Apple Maps.
- 4. They’re using a globally rolled-out payment scheme: MasterCard. By partnering up with MasterCard and making an awesome titanium creditcard, they have not only have the virtual Apple Wallet channel but also the ‘traditional’ physical one. This might sound trivial, but remember that Apple only had virtual payment techniques (Apple Wallet), still missing out on a huge user group that wants to pay with a physical creditcard, and more importantly: the payment infrastructure for Apple Wallet from an acquiring perspective was still very much in infant stages (at least outside of the US and parts of Asia).
- 5. The virtual and physical card’s security. Everybody has gone through the experience of losing his or her creditcard and having to call the bank to block is straight away, before fraud is committed. And for good reasons! Nobody wants their hard earned cash to fall in the wrong hands. Apart from the obvious security measures for the virtual card (i.e. Face ID, biometrics), the physical card has also been improved: it has no numbers – not on the front nor on the back. What a simple but awesome move of Apple.
Apple Card key features overview
So, what’s next for banks?
This post might sound like we’re getting paid to advertise for Apple, but the opposite true: we’re helping the financial sector move forward everyday, and Apple (potentially) just made it a whole more challenging for ‘traditional banks’ to gain grounds. However, this impact cannot be ignored and should force the industry to rethink their strategies and shift gears quicker than anticipated.
So is there any good news for established financial players?
Earlier we wrote about Porter’s 5 forces (in relation to blockchain). Entering a new market can be challenging. Michael Porter described 5 ways which complicate or inhibit new companies to successfully enter any given market. Granted, this theory is 40 years old, yet it still holds true (for the best part of it). For each of the 5 forces, one could write an entire article on how or why this force will impact Apple’s market entrance.
But for now, let’s look at some first thoughts for each of them, for the banking industry in general:
- Degree of rivalry: high. The financial market is crowded with many (global) players. Retrieving a banking license is easier than ever and technology enables companies to expand their geographical horizons in an instant and fully digital banks pop up on a monthly basis (totaling 3 billions users in 2021).
- Threat of new entrants: medium. Although it has become easier to obtain a banking license, starting a bank or financial service is quite different than starting a ‘mom and pop’ bakery or coffee place.
- Bargaining power of buyers: low. Although switching banks, peer to peer and crowdfunding initiatives, and the quick uptake of digital, smaller banks enable people to exert force on the market, generally the bargaining power is low. Financial institutions still hold a lot of power and over 90% of people stays with their first bank, often because switching to another one is complicated and often costly.
- Bargaining power of suppliers: medium. A bank is a service company. As such, its suppliers are generally depositors, employees and (tech) infrastructure suppliers. Their bargaining power individually is low, as employees are interchangeable, just as smaller depositors are. However, tech and infra companies that provide services to banks are much harder to replace – many banks work with outdated systems (just like airports do, by the way). Revamping those is quite an undertaking and the saying “don’t fix it, if it ain’t broken” definitely applies to the banking world.
- Threat of substitutes: high. Porter defines a ‘high’ for this force when “the substitute product is cheaper than industry product, consumer switching costs are low, substitute product quality is equal or superior to industry product quality, or when substitute performance is equal or superior to industry product performance”. This is exactly where Apple excels on all of the above points and is definitely a viable substitute for ‘classic creditcard’ we we know it.
Exciting times ahead
Concluding, we can see that the banking industry is going through a transformation whereby some of the ‘forces’ that put traditional banks at risk are still low, where others are rising and becoming high. With the progression of technology, the increasing customer power, peer to peer initiatives and tech companies – such as Apple – moving into the financial space, most certainly we will see a more competitive market over the next years, with (hopefully) many more great innovations to come.
For now, let’s see how Apple will materialize its potential and capitalize on its opportunity in the global market. One thing is for sure: Tim Cook and his amigos moving into banking is a huge, huge move. Not only should this be worrisome for existing financial players, moreover does it set the tone of what Apple’s bigger plans are: disrupting other markets than the ones they have active in for so many years.