Apple has unveiled its plan to boost its service offerings amid slowing growth in iPhone sales.
On Monday company officials led by chief executive Tim Cook, along with top media and entertainment personalities, used half of the time in a special event at Apple’s headquarters in Cupertino, California, to introduce the Apple TV+ video subscription service.
However, industry watchers believe it is the launch of the Apple Card credit card service that holds a lot of promise as it gives the technology giant an opportunity to shake up the traditional banking sector.
Apple customers have used Apple Pay for about 10 billion transactions in 2019, and the company aims to further expand the payment service to more than 40 countries this year, Cook said at the event.
Apple Pay’s success has encouraged the company to partner with Goldman Sachs to launch its own credit card service called Apple Card. Cook said the new product is built on simplicity, transparency and privacy, and designed to help customers to pursue a healthy financial life.
Apple Card is deeply integrated with iPhone and will be stored in the Apple Wallet app. Qualified iPhone users in the United States can file their application on the phone itself and their card will be ready in just a few minutes.
Such an arrangement indicates that there may be no need for applicants to submit address or salary proofs. It also suggests that the credit limit for the card will initially be very low but will increase as it is used more frequently and for a longer period of time.
Apple said the credit card has no annual, late, international or over-the-limit fees. Its goal is to provide interest rates that are among the lowest in the industry. If customers miss a payment, they will not be charged a penalty rate.
Apple will generate revenue from the interest income from the outstanding balance as well as transaction fees.
The credit card will provide users Daily Cash rewards ranging from 1 to 3 percent per transaction. Consumers will be encouraged to use the Apple Card to pay for Apple services, which will give them 3 percent Daily Cash rewards. As such, the scheme will strengthen brand loyalty among Apple customers.
In addition, Daily Cash can be used to settle the balance or transferred to a bank account like ordinary cash.
While Apple Card does not charge penalties for late payments, the interest rate on the credit amount could be affected by late payments.
For most of the financial firms, interest income is a major source of revenue: customers are charged additional interest payment if they use the card without first settling the previous balance.
But Apple said it wants its card users to settle their balance flexibly. Users can pay the bills weekly rather than monthly to reduce the interest payment. The company said it wants to help users to better manage their spending and financial health, rather than just to make money from the credit card service.
Apple Card is at the core of the company’s business transformation. Riding on the success of Apple Pay, the company is betting that its users will make Apple Card an indispensable part of their daily financial transactions, and if that is the case, they will continue to use the iPhone and will not turn to other brands.
Moreover, Apple Card will help the company reach its target of doubling its service revenue by 2020. With the card service, Apple can further diversify its income streams by tapping the transaction fees arising from each transaction using the card.
For sure, turning the small amounts of fees from the card service into a huge revenue source is a long-term business. But it is not to be underestimated. WeChat Pay, Tencent Holdings’ (00700.HK) mobile payment service, is earning billions of yuan in China from transaction fees alone. Apple clearly wants to replicate that success in the United States.
Amid slowing demand, smartphone makers are finding it increasingly hard to convince users to upgrade to the latest models with just a few technological improvements or additional features. But Apple Card can help in boosting iPhone sales as it can attract consumers to switch to iPhone to avail themselves of Apple’s financial service offerings.
A columnist at Forbes.com estimates that revenue from Apple Card could amount to US$1 billion next year and reach US$5 billion by 2022 after taking into account interest income and fee revenue.
That may seem small compared with Apple’s total service revenue of US$10 billion in the last quarter, but that should help the company to diversify its revenue sources and reduce its reliance of hardware sales while boosting the loyalty of Apple users.
That’s a win-win deal for Apple and its users.
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