**Apple Introduces Its Own Credit Card: A Strategic Move into Financial Services**
In March, Apple surprised its audience with the launch of its own credit card. This move was unexpected as there were virtually no rumors preceding it, leaving many questioning why a technology company like Apple would enter the financial services market.
To understand this strategic decision, we need to consider Apple's broader business strategy. Over the years, Apple has faced a slowdown in hardware sales, which forms its primary revenue source. In response, Apple adopted several approaches: raising prices across all product lines and expanding into large foreign markets like China and India. However, these efforts were met with challenges.
The price hikes were significant. For instance, the flagship iPhone's price increased from $650 to $1,000, while other products like iPads, Apple Watches, MacBooks, and Mac minis also saw substantial rises. Despite this, Apple stopped reporting unit sales, focusing instead on revenue earnings.
Expanding into China and India proved complex. In China, the high cost of iPhones made them inaccessible to many, compounded by the dominance of WeChat as a multi-functional platform, making iOS less relevant. In India, import taxes and manufacturing requirements posed additional barriers.
With hardware sales slowing and international expansion hindered, Apple shifted focus to services. Services like Apple Music, TV+, News+, and Arcade have become critical revenue sources. Unlike hardware, which can be replaced every few years, services offer reliable, long-term income.
The introduction of the Apple credit card during their March event was a surprise. Credit cards are traditionally bank products, so why did Apple venture into this market? The answer lies in Apple's history and strategic vision.
Tim Cook is often credited with decisions at Apple, but it's important to note that Steve Jobs had his own ideas. As early as 2004, Jobs attempted to create an Apple credit card with Mastercard, aiming for rewards redeemable on music. Although this project was abandoned due to terms not met with Mastercard, the idea of an Apple credit card has roots in the company's history.
In the 80s and 90s, Apple offered consumer and business credit cards with attractive signing bonuses. While these were eventually discontinued, they highlight that an Apple credit card isn't as novel as it may seem.
The reasoning behind Apple's credit card launch includes enhancing Apple Pay adoption. Since its 2014 introduction, Apple Pay faced slow retailer adoption, partly due to competition from systems like CurrentC and privacy concerns. By offering a credit card with 2% cash back when using Apple Pay, Apple aims to incentivize both user transactions and retailer adoption.
Revenue potential is another key factor. Credit cards generate significant income through interest. With an estimated $5,300 average debt per user, the revenue opportunities are substantial. Even sharing this with partners like Mastercard could yield millions for Apple.
The credit card also strengthens Apple's ecosystem. Users receive 3% cash back on Apple purchases and benefits that keep them within Apple's services. Features like instant approval and virtual cards offer unique advantages over traditional banking methods.
In conclusion, Apple's credit card is a strategic move to diversify revenue streams, enhance user convenience, and reinforce its ecosystem. Its success will indicate whether Apple can make significant inroads into the financial services market.
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"WEBVTTKind: captionsLanguage: enBack in March Apple introduced their veryown credit card, to the audience’s surprise.There were virtually no rumors about Applemaking a credit card and for some people theidea didn’t make much sense.Why would Apple, a technology company, enterthe financial services market?Well, that’s exactly what we’re goingto find out.This is Greg with Apple Explained, and I wantto thank Nytstnd for sponsoring this video.If you want to help decide which topics Icover, make sure you’re subscribed and thesevoting polls will show up in your mobile activityfeed.Now although this video is about Apple’scredit card, we have to zoom out and see thebigger picture in order to understand Apple’sstrategy.Because this is something much larger thana single product or service.And it all started when Apple was faced withone of their biggest fears, the slowdown oftheir primary source of revenue: hardwaresales.Now obviously Apple knew this would happensomeday, and they took a few approaches toprevent slowing hardware sales from eatinginto their revenue growth.First, they began raising prices.Over the past few years, the price of a flagshipiPhone went up from $650 to $1,000.The price of an iPad Pro went up from $650to $800.The price of an Apple Watch went up from $330to $400.The price of a MacBook Air went up from $1,000to $1,200.And the price of a Mac mini went up from $500to $800.Never in Apple’s history had we seen suchexorbitant and deliberate price hikes acrossall product categories.And it was clear the reason why, especiallywhen Apple decided to stop reporting unitsales, and instead provide revenue earningsfor each product category.But that wasn’t the only way Apple plannedon combatting slowing hardware sales.They also tried establishing a stronger presencein large foreign markets like China and Indiawhere they hadn’t seen much success in thepast.But this proved to be more complicated thanperhaps even Apple expected.Customers in China are much more price-consciousthan in the US, and considering the iPhoneXS starts at $1,220 in China, it isn’t surprisingthat most customers consider Apple productsout of reach.Not to mention that smartphones are toughto differentiate in China since virtuallyeveryone uses the same app, WeChat, as a sort’veproxy-operating system to call, send messages,make purchases, pay bills, find local restaurants,book doctor appointments, hail taxis, holdvideo conferences, use banking services, andeven access their virtual government ID card.So for many Chinese customers iOS and Androidis irrelevant when both platforms offer theirtrue platform of choice: WeChat.So as you might’ve guessed, Apple was neverable to make much headway in Chinese market.And when it came to India, Apple faced a similarproblem of being priced out of the marketdue to import taxes.They tried negotiating for lower tariffs andthe opportunity to build Apple Stores in thecountry, but India upheld their standardsthat foreign companies have to meet in orderto have access to the Indian market.For example, manufacturing the products inthe country and sourcing at least 30% of itscomponents from Indian companies.So while their strategy of price hikes workedout as planned, their expansion into Chinaand India did not.But Apple had one more idea to generate additionalrevenue.Which was to aggressively expand their servicescategory.Because not only is it their fastest growingrevenue source, but Apple can expect customersto pay for services more reliably than hardware.For example, if you’re an Apple Music subscriberand enjoy the service, you’ll likely continueto pay the monthly $10 subscription for manymany years until you decide to use a differentstreaming service or find a different wayto listen to music altogether.But those situations are far less likely tohappen compared to you buying an iPhone andthen deciding to switch to android after acouple years.And this isn’t even considering the factthat by entrenching users in as many of theirservices as possible, Apple is more likelyto keep customers in their ecosystem.If you’re using iCloud Drive and Apple News,you’re far less likely to buy non-Appleproducts since they wouldn’t allow you touse most of the Apple services you’re familiarwith.Now you probably remember the Apple Eventback in March where several new services likeApple TV Plus, Apple News Plus, and AppleArcade were announced.Their introduction were fairly underwhelmingsince many rumors leading up to the eventwere spot on in predicting the services Applewould reveal.That’s is, all expect one.When Apple announced their own credit card,it came as a surprise and left many peoplewondering why Apple decided to make it.After all, credit cards are financial productstraditionally offered by banks.So why would a technology company enter thatmarket?Well, there are a few really good reasons,but I want to start off by providing a littlebit of Apple history.Because with any new product or service Applehas released since Tim Cook became CEO, thereare people who claim “Steve Jobs would havenever let that happen.”And I heard this a lot in regards to theircredit card.But what most people don’t know is thatSteve Jobs actually wanted Apple to make theirown credit card.Back in 2004 Jobs tried negotiating a dealwith Mastercard to create an Apple creditcard that would offer users iPoints whichcould then be redeemed for free music.The project got pretty far along since therehad already been an ad campaign create inpreparation of its release.But unfortunately Jobs wasn’t able to getthe terms he wanted with Mastercard so theApple credit card project was abandoned altogether.Although if we go back even further in Apple’shistory, we’d discover that they did infact release several consumer and businesscredit cards in the 80s and 90s.And they came with some incredible signingbonuses, like $2,500 of instant Apple creditwhen approved.That’s about $5,500 today adjusted for inflation,which is unbelievably generous for simplysinging up for a credit card.Now eventually Apple stopped offering thesecards, but it’s important to understandthat the concept of an Apple credit card isn’tas inconceivable as it may appear.Now let’s figure out why it’d be a goodidea for Apple to offer a credit card to beginwith.And the first reason has to do with ApplePay.If you remember back in 2014 when Apple Paywas introduced, Apple wanted it to becomethe most common way their users made purchases.But this didn’t end up being the case.Adoption of Apple Pay by retailers moved painfullyslow year after year, and made things frustratingfor users, who weren’t sure which storesaccepted the payment method.So half the time trying to use Apple Pay wasmore of a hassle than it was worth, sinceit ended up not working anyway.Apple also faced opposition from major retailerslike Target, Walmart, Best Buy, CVS, and 7-Elevensince they were already developing their ownmobile payment system called CurrentC.It’s also important to point out the privacyfeatures of Apple Pay that retailers aren’thappy about.If you use something like Walmart Pay whichuses CurrentC technology or even traditionaldebit and credit cards, the retailer is ableto create a shopper profile for each customerthat would track their spending habits anddeploy sales tactics like emailing couponsor promotions in order to encourage more spending.But if retailers adopted Apple Pay, they’dno longer be able to do this, which is seenas detrimental to their business.So in an effort to push the adoption of ApplePay more aggressively and encourage its useamong users, Apple decided to integrate theircredit card with the service and offer 2%cash back if Apple Pay is used to make a purchase.This will incentivize users to make transactionswith Apple Pay while also putting pressureon retailers to adopt the payment method forthe convenience of their customers.The second reason why Apple made a creditcard is its huge revenue potential.Although it’s unknown what kind of revenuesplit Apple and Mastercard agreed to, it isknown that banks generate an unbelievableamount of money from credit card interest.And Apple is looking to cut a piece of thatpie for themselves.In fact, the average American carries about$5,300 worth of credit card debt month tomonth.And with an average interest rate of about17%, that’s an average of $900 a month thatevery credit card user is generation for theirissuing bank.So if Apple theoretically has one millioncardholders and shares 50% of their revenuewith Mastercard, they'd still be making hundredsof millions of dollars every month off ofinterest.But this huge potential for revenue isn’tthe only reason why an Apple credit card isa good idea.It also encourages people to stay in Apple’secosystem by offering 3% cash back on purchasesfrom Apple and giving users an incredibleway to track their spending and organize theirmonthly payments.Apple was in the perfect position as the creatorof iOS to integrate incredible software featuresthat differentiates their credit card fromothers.Not only is it primarily a virtual card thatyou can apply for through iOS, but it’sissued to you just minutes after approval.So you don’t have to wait on the physicalcard to show up in the mail before using it.Now that may not seem impressive to youngpeople who are used to doing everything online,but it’s a completely new approach to creditcards that we haven’t seen any bank takebefore.And while the Apple Card’s reward programisn’t the most generous in the industry,it is simple and straightforward.You get instant cash back on all purchasesmade with the card.No point system or waiting for your cash backat the end of each billing cycle.So if you take a step back and look at theApple credit card from a strategic perspective,it’s easy to see why creating it was a gooddecision for Apple.It’ll generate a large source of revenuefor the company, it offers improvements andconveniences that other cards on the marketdon’t, and it’ll be most appealing toApple’s own users which will keep them evenmore rooted in Apple’s ecosystem.The card is set to be released this summer,and that’ll help us gauge just how successfulApple’s entry in the financial market willbe.And while you may have to wait a while beforegetting the Apple Card, you don’t have towait to get the most comprehensive chargingsolution for your Apple products called theNytstnd QUAD.They’re actually offering you guys 20% offwith the code APPLE EXPLAINED which is reallygenerous.I’ve been using this base station for acouple weeks and it’s definitely the mostconvenient way to charge all of my devices.There’s a spot for my iPhone, AirPods, AppleWatch, and even my iPad which is somethingrarely offered in charging solutions I’veseen in the past.And to be honest I rarely have all of my devicescharging at the same time, so I’ve actuallybeen using one of the lighting docks as anApple Remote holder which has been a lifesaversince now I always know where it’s at andit’s always 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