While the idea that large technology businesses might one day compete with banking giants has been a topic of discussion for some time, recent developments have brought the potential threat into focus.
Late last month, Apple unveiled the Apple Card, “a new kind of credit card created by Apple”. The Mastercard-issued card, which will be available in the US this summer, is integrated into the iPhone’s Apple Wallet app and utilizes Apple Pay, and offers 2% cash back on all regular purchases and 3% cash
back on Apple purchases.
Unlike most credit cards offering cash back, Apple Card’s so-called Daily Cash is available immediately and can be applied to new purchases and existing balances. It can also be sent to friends and family.
Another point of differentiation: each Apple Card comes with a unique card number that is stored in the security chip used by Apple Pay. Purchases are authorized with Face ID or Touch ID and a one-time unique dynamic security code. For security and privacy-conscious consumers, Apple says that its
“unique security and privacy architecture…means Apple doesn’t know where a customer shopped, what they bought or how much they paid.”
Finally, the Apple Card carries no fees and Apple says that it will offer rates that are among the lowest in the industry.
Where is Apple going with Apple Card? According to Apple CEO Tim Cook, “We want to take the Apple Pay experience further to another fundamental method of payment. We envision a future in which every payment is made this way.”
If that statement isn’t revealing enough, PaymentSource’s John Adams connected the dots:
“…the Apple Card piles on features to make it the top-of-wallet choice. The card bundles instant issuance, loyalty, accounts, social P2P transfers, contactless mobile payments and personal financial management as part of the same relationship and user experience.
“These services exist at hundreds of banks and fintechs, but usually not in the same product — and rarely come with incentive pricing for movies, TV and games.”
If Apple achieves its goal of making Apple Pay a “fundamental method of payment”, it would have the perfect base from which to launch further assaults on the banking industry. For instance, it wouldn’t take much for Apple to leverage its position to launch a deposit offering.
Incidentally, that’s something a major mobile telecom is doing.
This month, T-Mobile, the third-largest mobile carrier in the US, announced T-Mobile Money, a mobile checking account that offers interest rates of up to 4% on deposits.
T-Mobile Money is open to anyone in the US. To get the highest rate, a depositor must have a T-Mobile postpaid plan and meet certain requirements. But even those that don’t have a relationship with TMobile might find the company’s new banking product intriguing; it is offering base rates at least
several times higher than the national average to all depositors regardless of their status.
Like Apple, T-Mobile partnered with an established financial institution, BankMobile, a division of Customers Bank, to launch T-Mobile Money. According to Tiffany Minor, T-Mobile’s marketing director for emerging businesses, “We don’t want to be a bank, we don’t aspire to be a bank.” Instead, TMobile is leaving all the compliance chores to BankMobile while it focuses on “delivering the customer experience in the wireless space.”
Minor’s comments hint at what is perhaps the big challenge big banks face today: Big Tech and Big Telecom players don’t have to physically become banks to launch bank and bank-like offerings that allow them to make big bucks from lines of businesses banks once owned.
Instead, they can combine their ability to create better, more convenient customer experiences with their ability to quickly and relatively cheaply bring those experiences to the large number of customers they already have relationships with. And they can develop unique incentives for those customers.
Fintech upstarts have proven adept at building innovative customer experiences, but virtually none have the kind of consumer access Big Tech and Telecom players do. That explains why so many fintechs, rather than aiming to compete directly with big banks, are increasingly interested in partnering
with them or being acquired by them.
Big Tech and Telecom companies, on the other hand, don’t need to partner with big banks even when they do partner, as evidenced by T-Mobile and Apple.
Customers Bank, T-Mobile’s partner, is a super-community bank with $11.1bn in assets. While not tiny, that pales in comparison to the assets of the four largest banks in the US, which each have over $1.8tn in assets.
Goldman Sachs, Apple’s partner, is a much larger firm, but the investment bank is hardly a retail banking powerhouse. While it has almost a trillion dollars worth of assets, it only became a bank holding company in 2008 and didn’t begin pursuing retail deposits in earnest until 2016 when it acquired the online deposit platform of GE Capital Bank.
Goldman Sachs has obvious advantages over fintech upstarts when it comes to money but it doesn’t have a huge base of existing retail customers to tap and therefore its approach to building out consumer lending and deposit-taking businesses has been decidedly fintech-like.
Of course, it must be noted that despite the threat Big Tech and Telecom pose, big banks aren’t currently hurting for deposits. As Ron Shevlin of banking consulting firm Cornerstone Advisor told USA Today, these banks have actually seen significant deposit growth in the past five years, which is reflected in the fact that they have for the most part refused to raise the rates they offer depositors.
But Big Tech and Telecom’s efforts in this space are far more nascent than those of fintechs and big banks would be wise to consider that if they wait too long to recognize Big Tech and Telecom as viable threats, they probably won’t be able to play catch-up nearly as easily.
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