Apple Card's pushing U.S. banks deeper in the payment tech hole
Financial institutions cannot ignore the fact that as contactless mobile payments increase, Apple (Pay) will use it to its advantage. Why? Because a cardholder making a purchase with their iPhone will receive a push notification from the Apple Card in real time — reinforcing trust and helping customer loyalty grow.
As contactless payments continue to pick up, Apple could gain significant ground by forcing banks to shift their products from the plastic card to much better payment apps and wallets.
The U.S. was behind during the chip revolution and still lags in contactless payments compared to Europe, Canada and Australia — where a good portion of the payments are already tap and go. Small changes such as the NYC subway system accepting contactless payments will trigger this movement here in America as well.
Apple has successfully identified key card functionalities consumers want from their banking providers. Big credit card issuers will be under pressure to be more transparent in their fee structure and will perhaps need to stop charging some of their hidden— or not so hidden— fees.
But all card issuers, not just the big ones, will be under pressure to revamp their mobile interaction with cardholders. This is where real competition lies. Banks and credit unions don’t need to play catch-up with Apple on all fronts — just taking a leaf out of its user-experience book makes a good start.
In terms of cash back, the Apple Card offers are not way above the industry. The main thing it got right is enabling cardholders to use the cash-back functionality to get real cash, without allowing the issuer to interfere with “breakage ratios” — the difference between the offer rate and the real usage. Again, this might put some big banks under pressure to stop playing games for a bit more profit.
Yet don’t expect the big banks to make sweeping changes to their fee structures anytime soon. They will take time and observe the cardholder reaction and pressure before sacrificing even small profits.
One key area where banks cannot afford to hesitate and play catch-up with Apple is customer experience. That means they will need to make changes to their mobile banking apps. The vast majority of banking apps have been designed around checking and saving accounts and do not offer compelling visual tools to entice consumers.
Furthermore, few banks have developed functionality around credit cards and shopping. Even fewer financial institutions offer digital engagement with their cardholders linked to transactions. Positive customer experience around the Apple Card and its app will force banks to review and reshape their own mobile apps — and this will be before they look at making changes to their fee structures.