BusinessDay

The big deal about Apple’s digital credit card

Technology giant, Apple may not be the biggest player in the smartphone market segment in Nigeria and Africa; however its products are often seen as the final word on innovation particularly among the middle and elite class many of whom own one or two Apple products. Hence, when the company says it is taking a big step in the payment segment, it should be taken very serious.

The card may likely not be ready for use in a country like Nigeria in 2019, unless Apple decides to go all out to push for the market. Even so, it will still have to contend with established brands with far cheaper options like Transsion – the smartphone leader in the region – and Visa and Interswitch both of which control the card market.

But Apple did not get to be the most valuable company in the world by chance and that is what makes its latest announcement a massive deal.

It should be said that the credit card foray is only a part of Apple’s revenue diversification programs. The company has also ventured into movie making and TV shows productions.

In its new credit card adventure, Apple has decided to enlist the help of two of the biggest players in the financial services – Goldman Sachs and Mastercard. Goldman Sachs emerged as the top ranked mergers and acquisition (M&A) financial adviser for 2018, leading the table for the global top 20 financial advisers for 2018 financial year, according to data from GlobalData. Mastercard on the other hand is the second largest credit card company in the world in 2018. It is only behind Visa.

At Apple’s Show Time services event at the Cupertino, California, headquarters on Monday and in the midst of a roaster of big-name celebrities, including Steven Spielberg and Oprah Winfrey, Apple’s CEO Tim Cook also announced the company’s entrance into the video-streaming market. But it was the digital credit card that took most of the highlights at least for the financial services world.

The credit card is managed through a redesigned Wallet app on the iPhone which enables users track their spending, schedule payments (even multiple payments in a single month), and see in real time how payments of different amounts will affect their balance and interest owed, if any. It offers a variable interest rate ranging from 13.24 per cent to a massive 24.24 per cent based on the users’ credit score – the better the score – anything from 670 to 739 is considered good enough and attracts lower interest rate.

Consumers will earn 3 per cent cash back on purchases at Apple, 2 per cent cash back on all other purchases using Apple Pay, and 1 per cent cash back on purchases with the all-titanium physical card. It does not advertise any annual fee and no late fees, either.

Every purchase requires a fingerprint or face-identification confirmation. For privacy reasons, Apple said it will not track where payments are made or for how much. The budgeting features are done on the device, and Apple has committed to keep user information far away from third-parties.

Apple’s financial success has largely been driven by revenue from developed markets. That however is starting to tell on its revenue. The company briefly halted trading of its shares on January 2, 2019 and lowered its holiday period revenue guidance after a revenue fall warning was issued by its CEO.

Following that move the company’s first quarter which includes the holiday shopping season declined 5 per cent at $84.3 billion from the previous year. Analysts had estimated revenue of $83.97 billion and earnings of $4.17 per share. It was the first decline for both revenue and profit in a holiday quarter that Apple has posted since the iPhone’s introduction more than a decade ago. It also reinforced calls by experts for the company to re-evaluate its pricing mechanisms in emerging markets.

Although Cook said Apple was satisfied with its performance China, iPhone sales many of the emerging markets have largely underperformed for obvious microeconomic reasons. Global drop in sales of smartphones and Apple’s emerging markets difficulties is mainly behind the aggressive push to diversify its revenue sources.

Apple may be scaling up its revenue diversification, it is however not letting go of its flagship product – the iPhone. In January, Cook disclosed that prices of iPhone brands will be lowered in certain countries.

“When you look at foreign currencies and then particularly those markets that weakened over the last year those (iPhone price) increases were obviously more,” Cook said in an interview with Reuters. “And so as we’ve gotten into January and assessed the macroeconomic condition in some of those markets, we’ve decided to go back to more commensurate with what our local prices were a year ago in hopes of helping the sales in those areas.

Should Apple made good on a new pricing strategy, there is every chance it will benefit selected markets in Africa as well and open a channel for the company’s payment ambitions to thrive on the continent. And who says Apple may not want to leverage Mastercard’s deep connections to financial institutions on the continent?

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