Apple's digital card leads the great credit card revamp
Have you seen Apple's digital credit card?
Right now it's only in the US but is worth noting as a frontrunner in the great credit card revamp.
It just looks good, sitting snugly within Apple's digital wallet. In fact, I'd argue that the coolness of such a digital payment product helps with its uptake. You might scoff but think about how much plastic you're currently carrying around. Some reading probably don't even have a physical wallet anymore, let alone plastic cards.
Westpac's new digital credit card, Flex, is yet another reminder of where credit cards are going. This card touts access to $1,000 credit with no interest on purchases, no late payment fees, and no foreign currency fees. Instead, users are charged a flat $10 monthly fee, which will not be charged if they pay the amount owing for the previous month on time.
In this way, the card is very similar to a buy now pay later product, as well as other instalment based cards before it, including CommBank's Neo card and NAB's Straight Up card. The same goes for Mastercard's version of instalments, which it coupled with Qantas and Latitude Financial. ANZ also got in on that act recently, teaming up with Visa on a similar instalments style card.
So, why does this all matter?
Well it's the latest go-to move by traditional lenders to shift credit cards toward something different - something that looks and feels more like buy now pay later.
Flex's people say that its card has been "designed to meet the changing needs of younger customers who want greater control over their finances and are more likely to use their smartphone to manage their money." This is the key point: younger customers want a format that resonates with them, even if many "no-interest" credit cards operate in a similar instalment based set-up already.
The perception of greater control, and the desire of consumers generally to use their smartphone for absolutely everything, is in a sense, putting an end to plastic cards.
Digital payments paradise?
To devotees of all things new, digital technology might be seen as a saving grace in this space. But there might actually be a problem if tech firms control both the payment platforms and the rules around their use. It sounds a bit like Facebook choosing the news. For example, Apple's digital wallet app is a closed payment structure which surely suits some lenders but not all. In fact, many of the major lenders were slow to participate in this format, which commits the user to the Apple phone and therefore its contactless payment technology.
While most big name banks have signed on in recent years, several lenders now find themselves scrambling for new ideas to better compete in the digital payments space. Among their ambitions is having a share of the new credit card movement, which for the most part is following buy now pay later models. The trick here is concentrating on the user's experience and less so on the limits and rules of the 'old' credit card.
But the influence of smart tech on our personal finances perhaps isn't so clear cut.
Plastic cards versus the new digital payment platform
It's been reported that Apple is not letting other firms use their NFC chip - which is a silicon component used for communicating info - for contactless payments. Of note, CommBank's chief Matt Comyn told a parliamentary joint committee on digital wallets in July that Apple Pay had an 80 per cent market share in digital wallet payments, a level he said was “usually cause for concern”, as per a report in the Australian Financial Review.
In short, Comyn is saying that if payments are being routed through smartphones - most of which are made by Apple - it's problematic for the consumer who deserves options. If Apple’s tech, or any company's tech for that matter, creates a closed loop which denies consumers the benefits of new payment technologies, it could feasibly limit choice, experience and competitive prices, as Comyn alludes to. CommBank therefore wants “fair access” to the iPhone NFC chip, the AFR reports. Without this, the bank says it can't fairly create a competing product.
The main issue here is Apple's scale, which means its digital wallet is a widely used service. Apple would undoubtedly argue that it has the right to protect its intellectual property, but also that its system helps the lenders it works with given the security of its technology, as well as reduced costs associated with creating plastic cards.
We don't have time to break down all the pros and cons here, suffice it to say that the ACCC is looking into this and the overall regulation around such payment systems.
For us, the core of the matter is that consumers seem drawn to new payment methods and in particular, share a largely favourable view of Apple products. It stands to reason then that Apple's approach leads the way and when it creates something new like a credit card sitting inside its digital wallet, inside its Apple phone, consumers pay attention.
One less step - better payment experiences
So, this has become about user experiences: the credit card landscape has turned into a battle of payment formats and how those designs, so to speak, can impact the customer's payment journey.
The new formats are more attractive to the eye, but also more easily accessed and this can't be underestimated. People want more convenient and faster ways to pay, especially when spending less time in physical stories during this pandemic time. They want products that require fewer steps and probably as few swipes of their phone as possible.
Apple's own credit card stands here. It's the perfect example of a non-financial institution making its mark in personal finance. If you're already an Apple customer, signing up seems like a no brainer. Access to such a card (assuming we get it here in Australia) just feels a lot more relevant in today's increasingly digitised world. What Apple has gotten right with its product is a focus on simplicity: it's simple to find, understand and manage. And like the phone that hosts the card, it's nice to look at. That's part of the equation, there's little doubt of this, and, as such, traditional lenders appear eager to get more involved in the revision of credit cards more broadly.