Last month, Apple announced the launch of the Apple Card, signalling its entry into the world of financial services. For its billion or so iPhone users, this promises to be — as the company put it — a new kind of credit card, built on simplicity, transparency and privacy and designed to help customers lead a healthier financial life.
Unlike other cards, Apple Card is primarily a digital and mobile offering complemented by a sleekly designed titanium metal card. The card number is fully digital, stored securely within the phone. Payments can be carried out primarily using the Apple Pay contactless payment option, authorised using biometrics and a one-time security code that changes for each transaction.
The card can be signed up for in minutes, there are no fees whatsoever — a first for any credit card — and interest rates are planned to be among the lowest in the industry. Customers can view their spends grouped by categories for easy understanding and budgeting, supported by geo-spatial data on purchase locations, and receive moderate rewards paid out daily as cash in the wallet.
Cool? It most certainly is, as with all products from the company that wants to put a dent in the universe.
Revolutionary? The jury is divided.
While the new card promises a better user experience and enhanced security, the fundamental and decades-old proposition of a credit card remains unaltered. Interest rates can vary significantly, up to double, based on customer credit worthiness, and cash back amounts are lower than what is offered by some the leading brands in the US.
And there are some nagging questions as to whether the easier payment options and immediate rewards will encourage impulsive spending and pile up consumer debt over time.
The advent of big tech
What the launch also signified is the slow but steady march of big tech firms towards banking. Facebook took initial steps in 2015 with the launch of a payments feature for US customers that allowed peer-to-peer transfers with no fees, and is now trialling WhatsApp Pay in emerging markets like India. The e-commerce giant Amazon launched its first financial product about a decade back and now offers insurance, co-branded credit cards and small business loans.
Google is scaling up its Google Pay wallet across markets and recently obtained an e-money license in Europe. The Chinese giants like Alibaba and Tencent are already significant players in most areas of banking in the country, including payments, loans and wealth management and are seeking to expand globally.
Big tech work from a strong customer-centric ethos, have a high level of customer trust (maybe not so high for Facebook!) and of course access to state-of-the-art technology, all of which makes for a strong combination. Open banking regulations in markets like UK and Europe that enable customers to allow businesses other than banks to access their financial data is levelling the financial services playing field for bank and non-bank players.
However, concerns are emerging about how rapid disruption by big tech can foster unhealthy competition resulting in, over time, lowered credit and risk standards. Governance frameworks in most countries are still evolving and central banks currently oversee only banks and not all banking in their jurisdictions. Unsupervised access to financial and other data can be unhealthy to customers, markets and societies.
Finally, potential domination by a handful of large global corporations can crowd out healthy competition and be in contravention of antitrust laws that exist in many countries.
While fintechs brought in innovation and agility to disrupt specific banking services, their lack of scale and customer trust engendered collaboration more than competition with banks. Big techs bring in, apart from innovation, access to large loyal customer bases, big data and deep pockets that provide them with significant additional advantages.
So how are financial services incumbents responding? Most banks have been digitising their operations rapidly, carrying out transformation of their technology platforms and collaborating with fintech start-ups to enhance products, processes and services. Banks are also building strong design competencies and teams — in the last one year, Emirates NBD has hired as many as 16 design professionals with backgrounds that range from art and visual design to ethnography and information architecture.
Progressive banks are building data capabilities to enhance user journeys and provide personalised customer offerings. They are also putting in place open banking interfaces to integrate seamlessly with non-bank partners, and creating eco-systems of their own to provide customers with frictionless experiences.
Last but not least, banks, financial industry players and big techs are also looking to come together where needed — as the partnership between Apple, MasterCard and Goldman Sachs to launch the Apple Card demonstrates — to introduce enhanced banking solutions. The next generation of banking is coming and the winner — undoubtedly — will be the customer.
Suvo Sarkar is Senior Executive Vice-President and Group Head — Retail Banking & Wealth Management at Emirates NBD.