If you hear the name Apple Inc, most of us would think of iPhone or iPod, or MacBook. Apple has been a technology company for the past 3 decades and has a considerable market share and has been consistently profitable.
But Apple launched its own credit card back in 2019, which seemed out of sorts with the positioning of the company. So why did they enter into financial services?
Pivoting towards services
iPhone has been the center of Apple’s success for more than a decade now. But the smartphone landscape has changed quite a bit since the launch of the very first iPhone in 2007. Technological advancements have plateaued. And smartphones have become so powerful, that people aren’t upgrading their phones every year. This is bad for business when your main product is a phone. And this has become quite evident with the numbers that iPhone and overall smartphone sales have been declining in the past few years.
So Apple has been slowly pivoting towards Services. It launched its own video streaming platform, Apple TV+. There are so many other services like Apple News+ and Apple Arcade.
But having its own credit card fits well alongside its foray into service businesses. So Apple not only sells you services but also the means to pay for them. And they make it seamless too, as the card also sits in digital form on the iPhone.
Apple has tried well and hard to push Apple Pay( which is basically an NFC-enabled contactless card payment launched in 2014), but its penetration has been low. Businesses and retail stores aren’t willing to adopt Apple Pay since they’re having their own mobile payment and loyalty platforms. Apple also didn’t share user data when paid using Apple Pay, which meant businesses are losing out on targeted marketing.
So having a credit card can accelerate the adoption of Apple Pay, as it forces these merchants and retailers to support payments using Apple Pay.
Locking into the ecosystem
Apple is pretty infamous for locking its users into their own ecosystem. Almost all of its products are compatible only with each other. For example, an Apple Watch can’t be paired to an Android phone, but only to an iPhone.
And same is the case with Apple Card, it’s accessible only on an iPhone. So once a user is accustomed to it, they’ll never move to any other smartphone other than iPhone. This is one hell of user retention and strengthens consumer loyalty.
Apple also offers higher cashback on purchases of its own products and services, so users are more inclined to use it for everything inside Apple.
And Apple has now announced Apple Pay Later, coming next year, yet another financial service to keep people hooked on the Apple train.
Credit Card Revenue
The US has one of the highest per capita credit card spending in the world, about $6000. So Apple still profits significantly after cuts taken by its partners Goldman Sachs and MasterCard. This is a significant and constant revenue stream for Apple outside its other businesses.