Could Apple Card deal a royal flush to British fintech?

Apple’s latest foray into financial services via Apple Card – “the biggest thing in credit cards in 50 years” according to its CEO Tim Cook – was met with a lukewarm response by a number of observers on this side of the pond.

Not least as many of the features resemble existing features already available in the UK and Europe. Challenger banks such as Monzo, Revolut and N26, already provide nifty personal financial management interfaces, and in-app chat functions. To call it a “game changer” seemed a tad hyperbolic.

“In short, it’s product is a bit underwhelming,” says Brian Riley, director at credit advisory firm Mercator Advisory Group. “Apple makes nice technology, but it is not the only game in town.”

Due to launch in the US this summer, Apple Card's partner Goldman Sachs has already said the product will be rolled out globally.

A question of scale

So should fintechs in the UK and Europe be worried about the tech giant parking its tanks on their lawn? Perhaps not immediately but in the long-term, maybe.

The UK has a relatively mature fintech market. There were 5.5 billion log-ins to banking apps during 2017, a 13% rise on 2016, according to trade association UK Finance – with that figure set to be much higher for 2019.  Last year £69 billion was spent via contactless devices, up from £7.7 billion in 2015. 

Kevin Morrison, senior analyst at advisory firm Aite Group, notes that mobile wallets such as Apple Pay and Samsung Pay have yet to gain a great deal of traction in the US, partly because the majority of merchant retailers are only now installing contactless systems. “Because that infrastructure has been in the UK for longer, it will be interesting to see how [Apple Card] is adopted.”

It’s precisely because the UK has a more mature market that it may be successful in gaining a foothold, say Tim Richards and Gary Munro, analysts at Consult Hyperion.

“What they are trying to do looks very similar to the challenger banks in the UK, but of course they have the advantage of the iPhone penetration,” says Richards. “[Apple Pay] is going to take a chunk of that market, I would think.”

Arriving slightly late to the party means Apple has the advantage of looking ahead and seeing what already works, says Munro.

It’s a sentiment that was echoed by Megan Caywood, Barclays global head of digital strategy, shortly after the launch.

“[The] challenge has always been, ‘will the innovators get scale before the incumbents get innovation’ but everyone has been terrified of the [Google, Amazon, Facebook, Apple] entering this space because they straddle being both incumbent and innovator since they’re tech,” she tweeted.

Bite of the apple

But the breadth of its uptake remains questionable. Dayna Ford, analyst at Gartner says the jury is out. “It will be interesting to see if it takes off in the US first.” She adds: “There is no reason why it wouldn’t appeal to a similar demographic in UK and Europe.” Namely iPhone users who buy enough via iTunes to feel the rewards are worth signing up for. The benefit for Apple is stickability: the money is recycled in its own ecosystem.

However, Hyperion’s Richards notes that even if Apple takes a small segment of users that is still a significant slice of the emerging market. “It will be profitable as it has near zero customer acquisition costs. Everyone with an iPhone will get an alert offering this service.”

New legislation is set to disrupt the market further. The recent UK Open Banking requirements and EU second Payment Services Directive (PSD2) require all payment account providers to provide third party access to a customer’s payment accounts. That could mean a raft of new digital services for customers.

“The shifting regulatory environment allied with the combination of smart phones, digital data and the increasing processing power of modern IT will make it possible for banks and other providers to offer an even wider range of new services to customers,” notes UK Finance in its last report into banking behaviour.

Against this backdrop “there will be no shortage of organisations willing to offer banking services to customers in the future.” Innovations could come from long-established banks, new challengers, fintech start-ups or the big tech firms.

Apple Card may not be revolutionary, but it could represents the first of many battles to grab a share of this increasingly lucrative market.