Thoughts on the Apple Card

I’d like to share some thoughts on the newly announced Apple Card, Apple’s attempt at breaking into the consumer finance market, why I do not think it’s as revolutionary as it claims to be, how I believe they could’ve truly revolutionised consumer banking and also some doubts on whether this will take off in non-US markets.

Apple’s innovation and unique selling point seems to be the lack of “over limit” and late payment fees coupled with a modern app and some “privacy” features which I believe to be marketing fluff (I’ll break it down a bit later). While this is a step in the right direction, I feel the whole idea of a credit card is flawed in today’s day and age, and we can do better if we truly want to disrupt the market.

The purpose of a credit card (to me at least) seems to be to give the cardholder instant access to a pre-approved loan. The fact it’s done through a card is just an implementation detail (which made sense back in the day) but in my opinion it’s time to change that - the current implementation of a credit account that needs to be paid off every month introduces unnecessary overhead and complexity and makes budgeting harder. If the purpose is to lend the customer money, why not just lend them money into their current account, in the form of an overdraft (with non-predatory fees)? They could tap into it with their debit card immediately just like with a credit card, could use it retroactively for previous purchases (something not easily doable with conventional credit cards, especially considering they go to great lengths to make it hard to get actual “cash” out of them so you can’t easily move a purchase made on your debit card onto your credit card and reclaim the money into your account to pay rent for example) and management becomes a lot easier - there’s a single figure to pay attention to (your current account balance, which if negative would indicate your overall debt), budgeting becomes seamless (you’re using a single card & account) and paying it off is an automatic process (it essentially gets paid off as much as possible when you receive money, and it’s then up to you to decide if you want to use the credit facility again by going overdrawn).

Of course, there are reasons why this isn’t done that way - the “management” overhead of a credit card works in the lender’s benefit since they make their money if you happen to miss a payment or not pay it off within the first month’s grace period - in fact I believe the grace period behaviour is nasty overall as it is kept profitable by the fees paid by those who fail to pay on time - most often the poor or less financially-savvy.

I think if Apple wanted to disrupt the consumer finance market, they should’ve started with a modern current account (in the UK we are lucky to have a healthy competitive “fintech” market with banks such as Monzo and Starling Bank, but little of that carried over to the US where banking is still stuck in the dark ages).

Apple has a great ecosystem and a cult-like following which means they can reach broad adoption quite easily especially if it’s built into their devices. They can also integrate Apple Pay Cash, which at it stands is pretty much a flop (why would anyone use that instead of Venmo, PayPal, etc) but could be an attractive option if it just worked transparently (and fell back to standard wire transfer/ACH if the target account isn’t Apple, just like iMessage does for plain SMS) and you didn’t have a separate balance to manage like with the current implementation of Cash.

On the privacy side of things, I have strong doubts about their argument - I suspect it’s a lot of marketing BS and nothing else (and I say that as a privacy advocate and mostly a supporter of Apple). The very nature of card payments means there’s a paper trail both at the merchant, at the card network (MasterCard in this case) and at the issuer (Goldman Sachs) and thus at Apple since they provide the customer-facing part.

In fact, the paper trail has to exist for regulatory & compliance purposes - let’s imagine for a second that the privacy aspect truly worked and transaction history was only stored on your phone - what will you do if your phone dies/get/stolen/etc, you had no backup and now the taxman is asking you questions - how are you going to answer? In fact, Apple themselves would get into a lot of trouble if they’re allowing you to transact without leaving any records.

With that in mind, it’s clear the Apple Card works just like a conventional payment card as far as transaction history is concerned - the whole “on-device” thing most likely means that transaction “enrichment” (the process that transforms the raw transaction data into a nice display of merchant name, location, category, etc) is done on the device instead of in the cloud, which seems extremely inefficient and error-prone, considering that a lot of that data is ambiguous and often can’t be interpreted without human review, input from third-party sources and a huge database of past transactions. Monzo for example uses crowd-sourcing where anyone can submit merchant data (if such a transaction has never been seen before across all their cards) or suggest corrections. How is Apple going to compete if they don’t have this “hive mind” and learning is limited to isolated devices? How are they going to handle the case where the data is ambiguous and human input is required? Monzo can handle this fine because the database is shared across everyone (so you benefit from everyone else’s corrections and they benefit from yours) but if learning is limited to a single device, this means everyone will have to “explain” unknown transactions for themselves separately, assuming they even have enough information & knowledge to do so.

Given that Apple actually has access to your transaction history (because they have to, for compliance reasons), the privacy aspect seems null, so they’re just shooting themselves in the foot by not using it to their advantage and building a comprehensive database of merchant data like UK’s modern banks do.

The privacy side of things also doesn’t mean anything when you consider that the card network itself can be malicious.

Overall, this card is a lot of hype for not much and will struggle to gain adoption outside of the US where debit cards are more common. It almost seems like Apple has lost their focus, strayed away from doing what made them successful and is now desperately trying to stay relevant by sticking they brand onto mundane and often lackluster services (Apple Music? Apple Maps? and now this?). What a shame.


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