Why Apple Is Making A Credit Card

Why Apple Is Making A Credit Card


Back in March Apple introduced their very
own credit card, to the audience’s surprise. There were virtually no rumors about Apple
making a credit card and for some people the idea didn’t make much sense. Why would Apple, a technology company, enter
the financial services market? Well, that’s exactly what we’re going
to find out. This is Greg with Apple Explained, and I want
to thank Nytstnd for sponsoring this video. If you want to help decide which topics I
cover, make sure you’re subscribed and these voting polls will show up in your mobile activity
feed. Now although this video is about Apple’s
credit card, we have to zoom out and see the bigger picture in order to understand Apple’s
strategy. Because this is something much larger than
a single product or service. And it all started when Apple was faced with
one of their biggest fears, the slowdown of their primary source of revenue: hardware
sales. Now obviously Apple knew this would happen
someday, and they took a few approaches to prevent slowing hardware sales from eating
into their revenue growth. First, they began raising prices. Over the past few years, the price of a flagship
iPhone went up from $650 to $1,000. The price of an iPad Pro went up from $650
to $800. The price of an Apple Watch went up from $330
to $400. The price of a MacBook Air went up from $1,000
to $1,200. And the price of a Mac mini went up from $500
to $800. Never in Apple’s history had we seen such
exorbitant and deliberate price hikes across all product categories. And it was clear the reason why, especially
when Apple decided to stop reporting unit sales, and instead provide revenue earnings
for each product category. But that wasn’t the only way Apple planned
on combatting slowing hardware sales. They also tried establishing a stronger presence
in large foreign markets like China and India where they hadn’t seen much success in the
past. But this proved to be more complicated than
perhaps even Apple expected. Customers in China are much more price-conscious
than in the US, and considering the iPhone XS starts at $1,220 in China, it isn’t surprising
that most customers consider Apple products out of reach. Not to mention that smartphones are tough
to differentiate in China since virtually everyone uses the same app, WeChat, as a sort’ve
proxy-operating system to call, send messages, make purchases, pay bills, find local restaurants,
book doctor appointments, hail taxis, hold video conferences, use banking services, and
even access their virtual government ID card. So for many Chinese customers iOS and Android
is irrelevant when both platforms offer their true platform of choice: WeChat. So as you might’ve guessed, Apple was never
able to make much headway in Chinese market. And when it came to India, Apple faced a similar
problem of being priced out of the market due to import taxes. They tried negotiating for lower tariffs and
the opportunity to build Apple Stores in the country, but India upheld their standards
that foreign companies have to meet in order to have access to the Indian market. For example, manufacturing the products in
the country and sourcing at least 30% of its components from Indian companies. So while their strategy of price hikes worked
out as planned, their expansion into China and India did not. But Apple had one more idea to generate additional
revenue. Which was to aggressively expand their services
category. Because not only is it their fastest growing
revenue source, but Apple can expect customers to pay for services more reliably than hardware. For example, if you’re an Apple Music subscriber
and enjoy the service, you’ll likely continue to pay the monthly $10 subscription for many
many years until you decide to use a different streaming service or find a different way
to listen to music altogether. But those situations are far less likely to
happen compared to you buying an iPhone and then deciding to switch to android after a
couple years. And this isn’t even considering the fact
that by entrenching users in as many of their services as possible, Apple is more likely
to keep customers in their ecosystem. If you’re using iCloud Drive and Apple News,
you’re far less likely to buy non-Apple products since they wouldn’t allow you to
use most of the Apple services you’re familiar with. Now you probably remember the Apple Event
back in March where several new services like Apple TV Plus, Apple News Plus, and Apple
Arcade were announced. Their introduction were fairly underwhelming
since many rumors leading up to the event were spot on in predicting the services Apple
would reveal. That’s is, all expect one. When Apple announced their own credit card,
it came as a surprise and left many people wondering why Apple decided to make it. After all, credit cards are financial products
traditionally offered by banks. So why would a technology company enter that
market? Well, there are a few really good reasons,
but I want to start off by providing a little bit of Apple history. Because with any new product or service Apple
has released since Tim Cook became CEO, there are people who claim “Steve Jobs would have
never let that happen.” And I heard this a lot in regards to their
credit card. But what most people don’t know is that
Steve Jobs actually wanted Apple to make their own credit card. Back in 2004 Jobs tried negotiating a deal
with Mastercard to create an Apple credit card that would offer users iPoints which
could then be redeemed for free music. The project got pretty far along since there
had already been an ad campaign create in preparation of its release. But unfortunately Jobs wasn’t able to get
the terms he wanted with Mastercard so the Apple credit card project was abandoned altogether. Although if we go back even further in Apple’s
history, we’d discover that they did in fact release several consumer and business
credit cards in the 80s and 90s. And they came with some incredible signing
bonuses, like $2,500 of instant Apple credit when approved. That’s about $5,500 today adjusted for inflation,
which is unbelievably generous for simply singing up for a credit card. Now eventually Apple stopped offering these
cards, but it’s important to understand that the concept of an Apple credit card isn’t
as inconceivable as it may appear. Now let’s figure out why it’d be a good
idea for Apple to offer a credit card to begin with. And the first reason has to do with Apple
Pay. If you remember back in 2014 when Apple Pay
was introduced, Apple wanted it to become the most common way their users made purchases. But this didn’t end up being the case. Adoption of Apple Pay by retailers moved painfully
slow year after year, and made things frustrating for users, who weren’t sure which stores
accepted the payment method. So half the time trying to use Apple Pay was
more of a hassle than it was worth, since it ended up not working anyway. Apple also faced opposition from major retailers
like Target, Walmart, Best Buy, CVS, and 7-Eleven since they were already developing their own
mobile payment system called CurrentC. It’s also important to point out the privacy
features of Apple Pay that retailers aren’t happy about. If you use something like Walmart Pay which
uses CurrentC technology or even traditional debit and credit cards, the retailer is able
to create a shopper profile for each customer that would track their spending habits and
deploy sales tactics like emailing coupons or promotions in order to encourage more spending. But if retailers adopted Apple Pay, they’d
no longer be able to do this, which is seen as detrimental to their business. So in an effort to push the adoption of Apple
Pay more aggressively and encourage its use among users, Apple decided to integrate their
credit card with the service and offer 2% cash back if Apple Pay is used to make a purchase. This will incentivize users to make transactions
with Apple Pay while also putting pressure on retailers to adopt the payment method for
the convenience of their customers. The second reason why Apple made a credit
card is its huge revenue potential. Although it’s unknown what kind of revenue
split Apple and Mastercard agreed to, it is known that banks generate an unbelievable
amount of money from credit card interest. And Apple is looking to cut a piece of that
pie for themselves. In fact, the average American carries about
$5,300 worth of credit card debt month to month. And with an average interest rate of about
17%, that’s an average of $900 a month that every credit card user is generation for their
issuing bank. So if Apple theoretically has one million
cardholders and shares 50% of their revenue with Mastercard, they’d still be making hundreds
of millions of dollars every month off of interest. But this huge potential for revenue isn’t
the only reason why an Apple credit card is a good idea. It also encourages people to stay in Apple’s
ecosystem by offering 3% cash back on purchases from Apple and giving users an incredible
way to track their spending and organize their monthly payments. Apple was in the perfect position as the creator
of iOS to integrate incredible software features that differentiates their credit card from
others. Not only is it primarily a virtual card that
you can apply for through iOS, but it’s issued to you just minutes after approval. So you don’t have to wait on the physical
card to show up in the mail before using it. Now that may not seem impressive to young
people who are used to doing everything online, but it’s a completely new approach to credit
cards that we haven’t seen any bank take before. And while the Apple Card’s reward program
isn’t the most generous in the industry, it is simple and straightforward. You get instant cash back on all purchases
made with the card. No point system or waiting for your cash back
at the end of each billing cycle. So if you take a step back and look at the
Apple credit card from a strategic perspective, it’s easy to see why creating it was a good
decision for Apple. It’ll generate a large source of revenue
for the company, it offers improvements and conveniences that other cards on the market
don’t, and it’ll be most appealing to Apple’s own users which will keep them even
more rooted in Apple’s ecosystem. The card is set to be released this summer,
and that’ll help us gauge just how successful Apple’s entry in the financial market will
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Comments

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    Compelling Point

    Compelling Points. Nice transition into the product ad the end. I'd like to do similar transitions. Great work!

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    Nik Nazriel

    One day there will be “Apple Bank” where it has their own ecosystem and it’s hard to use other bank account lol

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    luis jesus

    Americans are already immensely drowned in debt. Apple Credit Card will be the financial disaster for many.

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    Range Rover

    Wait, doesn't Apple Pay work everywhere where there's a contactless terminal (everywhere major pretty much)

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    rohit c

    apple would not see well in India even if the import taxes were removed , most people do not earn even a 1000 dollars a month. Even those making 2000 dollars a month, only a few of them would buy it.

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    Steven Sokulski

    I think you’ve got that monthly interest revenue figure wrong. The average interest rate of 17% is an annual percentage rate, not monthly. So the cards generate in excess of $900 per year, not per month.

  17. Post
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    jedics

    Can't afford our products? no worries, we have a credit card for that!
    Tim 'cringe' Cook has done it again, he's made Jobs turn in his grave so many times that Elon is using him to make his next tunnel.

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    sub-zero

    they’ve got to lower their prices again, ONLY reason I bought the iphone x was because of it’s ten year anniversary. I’m not going to pay that much for a phone again, even though I love my iphone.

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    Devanshu

    Thank you Indian's and Chinese for using phones based on value for money rather than being like a White's who buys cuz of brand name. It's cuz of them that Apple can charge anything now days. For example apple stand. If they boycotted apple or had purchased less then we wouldn't have to see such ridiculous price.

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    ricky v

    This was only logical. GM, has done the same thing. Once, a company gets large enough. The next best way to make even more money is to become a bank. LOL

  29. Post
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    Michael Moya

    It's simple they don't want people to be in debt to the banks they want people to be in debt to apple

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    Trent X

    Ha. I remember the currentC BS. They were hacked before the even launched, and tried blocking companies from using Apple pay. All that together made it DOA.

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    Fala Ai

    Apple Explained —- You said: "Apple was never able to make much headway in the Chinese market"

    It's shocking that you should make such an absurd comment as that. Apple in 2018 sold more than 52 billion dollars in the Chinese market (which was up 16% year over year). It is Apple's 3rd most important market after US and Europe. Let's see if you can name any foreign tech company that sold as much in the Chinese market. By the way all companies this year are suffering in the weak Chinese market. This is due to slow economic conditions. In smartphones Apple outsells Huawei in revenue by a large margin and Huawei is the home team in the Chinese market.

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    Abdenacer Fodil

    Even i hate this company that feeds from sheep . I have to hand it to them . That was a smart move .

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    M Man

    Better change that mock Credit card name. Anything with the name Marisa is disproportionately likely to fail.

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    Twentywulf

    Apple wants everyone’s data because In modern society data is the most valuable currency…imagine having people’s fingerprint data people’s facial image data and people’s financial data…wow

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    Dejenny Pilipovic

    I wonder when too many products will be too much. I hope they don't run into the problem they did way back then.

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    Satsui Nohado

    Despite the blaring fact that Apple is duping the sheeple with nonsensical money grabs,the sheeple still defend the brand as if it identifies with them.
    I've owned a Mac Book and iPhones for years and I switched to PC and Android. My Note 8 has features that iOS lacks. I just don't understand the brand loyalty. It's like just Raiders fans.

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    Otto 06

    If the prices are high in the US, come to Italy. iPhone XS should cost 899€ (999$) but it costs 1189€ (1342$)

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    Antonis J.kondilis

    A trillion dollar company wants to be guadrllion dollar company and finally change US name to UA (united Apple states)

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    vegangsta

    A lot of people watching this wont remember the credit cards that apple introduced years ago. Mainly people watching this are too young but also not many people heard of apple macs or purchased one in those days because they couldn't afford it

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    A namethatisn'tmine

    Amex allows you to use the card with Apple Pay if you’re instantly approved while waiting for the physical card.

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    DaBrother JOHNSON

    It would be nice if Apple would offer a fourth-quarter promotion using the Apple card. 5% for all Apple Pay transactions and 2% for using the physical card.

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    ryanxamp

    mastercard wont get any of the interest. that would be goldman sachs. mastercard will get part of the transaction fees. (usually like 3%)

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    Kaydreamer

    I’ve had the exact opposite experience with Apple Pay in Australia. The moment my bank got on board I could use it everywhere I could use regular credit/debit PayPass – that is to say, EVERYWHERE. I rarely go out with a wallet anymore since my iPhone just pays for everything. Super surprised to hear that is to the case in the States, I assumed they were further ahead on these things than us.

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    Richard Hitsugaya

    When it is launched in Canada I will sign up for one and put it in my wallet and never use it. The reward is pretty bad, but I gotta admit that titanium looks soooooo cool

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    鈴木大和

    Yeah, but why don't they make like Samsung Pay, accepted like everywhere in the world as long as there is a card terminal?

    Feel so sucks when I am unable to use Apple Pay in Malaysia because Apple Pay haven't roll out here.

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    Shahar Rozenbloom

    Apple Will create Lines Of Codes in Swift who Upper The Speed of the App and use Less CPU and Battery and More in Killer idea.

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    Shahar Rozenbloom

    Apple will buy A few company Ultra Law Latency for AirPods and iPhone and even for Apple Car like the Purchase By Cisco and Will Have new Lines Of Codes in in AirPods Pro to upper the Battery and Latency even in Beats Solo and Apple Watch 5 and Less In a Software Upgarde. Work. Tim. And in iPhone 11 and 11 Pro for better battery And Latency.and Less.

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    Bolei Wang

    2:10
    In China wechat is also used to pay for toilet paper
    (yes in some public restrooms in Asia you have to pay for toilet paper)

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    DAlex REal TAlk

    I only know of one other one bank that does the same thing that Apple does within minutes of opening your account Capital One let me put a digital version of my capital one platinum MasterCard on my Apple wallet minutes after opening my account they’re the only other bank and I got the Apple credit card and I love it

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    CaliforniaHiker

    If a store doesn’t accept Apple Pay you can use the Apple credit card, which is a MasterCard. The physical card does not have a number printed on it, just your name. As soon as the card has been used you get a notification on your iPhone. The credit card number resides in your iPhone, where you can view it, if you want to use it for online purchases. My Visa and American Express cards had their numbers stolen in cyberspace for fraudulent use. Somehow that seems a lot less likely with the Apple Card.
    All the information on your account is one click away in your Apple Wallet. No cumbersome signing into your Visa or American Express Accounts. Saves me a lot of time.

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