about business / Technology

The First Bank of Apple or the end of the Credit Card as we know it.

I reported here about what I think are some of Amazons plans to continue to dominate the online market space. Of the four online giants that I follow, Google, Apple, Facebook and Amazon, my money is on Amazon for the long term.  But I only follow Facebook just to figure out the timing for their melt down. I continue to think that Amazon’s strategy is not fully appreciated but in this post, I am going to speculate about another company, Apple, and its strategy for dominating the physical world of retail.





The Story begins with the iPhone 5s

Ever since the iPhone 5s came out, I have been wanting to post about the strategic significance of a number of its features.  In this post I will cover how it is a significant harbinger of Apple’s strategy to dominate retail transactions.


Apple wants to be the dominate platform for transaction performed in the physical world of retail just as Amazon wants to dominate the online world of retail.  Google has a “do everything” strategy similar to Microsoft in the 90s which we Intel Executives use to refer to as the “Mile wide and inch deep” strategy.


While the iPhone 5s fingerprint scanner is a work in progress, I am convinced that we will be using fingerprints as a  secure way to conduct transactions.That is why the introduction of the fingerprint reader in the iPhone 5s is so very important.  As one who has lost their credit card in an airport only to find out that a few thousand dollars of transactions were made in a just few hours, I can really appreciate the day when, instead of carrying a credit card in my wallet,  I can use my finger.


Low power Bluetooth 4.0 is very important in respect capabilities such as iBeacon which I will cover a bit later.  This is not a new capability but I wanted to mention it here since it is very relevant to my point of view regarding Apple’s strategy.


Some have thought that the introduction of a 64 bit processor in a phone was just a marketing ploy.  I don’t think so.  I think there are couple of reasons why Apple went in this direction.  The first is that this will allow them to upgrade the iPhone 5s with a new OS that will be available on future Apple Devices and the Mac desktop and notebook computers. The second is they will need the computing power to provide for a number of in store capabilities yet to be demonstrated.



iBeacons are small devices that can be spread around a physical environment such as a retail store or even a mall.  They use Bluetooth 4.0.  The protocols allow for a device such as an iPhone to establish communication without the use of Wifi or cellular capabilities.  Apple has already started using this in their own stores.  It will be possible to locate the device which means that directions can be given.  Now I am not talking about how to get to the grocery store.  I am  talking about how to find the milk in that store.  Offers can be made to consumers as they walk into stores or around stores.  And it will be possible to pay for items by scanning the products’ bar code.










The evolution of Credit Cards


The history of the credit card is very interesting.  It started in the 1920s by companies like Standard Oil who issued credit cards to allow drivers to purchase gas.  Diner’s card was the first general card. American Express came along l ater.  Then it was Visa and Master Card that really drove the mass adoption in the USA.  The use of credit cards came later in Europe and Asia but are not routinely used.  Most credit cards outside the USA are “smart card”, with embedded chips to provide more security.  ATM cards came a long which do not provide the credit feature since they draw money directly from a consumers account but they do have the convenience of credit cards as well as the security attributes. The use of ATM cards do not cost the retailer anything. They pay no fee and they get the benefit of having the money deposited into their accounts immediately.  Credit cards pay the retailer almost right way but since they charge a fee, it is almost as if they are lending the retailer money.  The bank makes money by using the float.  After all, I will have to have the cash just sitting my my account if it is going to be available for use by my ATM card.  On the other hand, the credit card company provides me with a float meaning that I am not charged for up to 30 days for the use of their money.  The average is 15 days. But then they are hoping their customers will not pay off the balance so they can charge them 18% or so a year on their unpaid balances.  To complicate matters further, the notion of getting loyalty points, like airline millage, is also now linked to credit cards.


Now many people have a number of cards in their wallets.   I have five myself and I never use the credit feature.  For me it is all about the convenience of not having to carry cash, the tracking of my purchases. and to a lesser extent, the ability to dispute charges.


Remember coupons?  I am sure some of you still use them.  I bet most of you can not remember or ever knew about “stamps”.  I think the use of coupons in the physical world is diminishing but I am not sure about that.  But the use of virtual coupons has just started.


As we can see, the world of retail transactions has gotten very complex and this creates a major opportunity for guess who?




One Stop Payment the Apple Way


iTunes has made Apple one of the largest processors of transactions globally.  Right now, iTunes uses a credit card that you supply to Apple. For every Apple ID there can be just one credit card. But I would much rather just use my phone. I could decide on what “card” to use and have the security of my finger print (which I think works very well on the iPhone).


About 2/3 of Americans carry iPhones.  I would guess this represents over 90% of buying power in retail.  No company is in a better position to make the phone the new payment device.


This capability can of course go beyond just retail stores.  For instance, I am also looking forward to the day I can have my restaurant bill presented to my phone and paid with my finger print instead of waiting and waiting for for the bill to come.


Recently, I was in NYC and discovered that I could pay for most taxi rides using an app that communicated with the Taxi’s meter system.  Finally, I have receipts for my taxi rides!


Recently, I was in NYC and discovered that I could pay for most taxi rides using an app that communicated with the Taxi’s meter system.  Finally, I have receipts for my taxi rides!




Apples’ real objective?


I am not  quite sure what Apple’s real objective is but I can see at least four possible ones


  • They could make money from every transaction.  It would require a lot of heavy lifting byut Amazon for instance already has a credit card.
  • Collecting information about our buying habits and selling that to business
  • Making the iPhone even more indispensable to consumers.
  • Introducing Apple Points just as I expect Amazon to do







What do you think?



9 thoughts on “The First Bank of Apple or the end of the Credit Card as we know it.

  1. I agree with you that Apple is in the very enviable position of being poised to take advantage of their iPhone customer base and take the world of virtual transactions to the next level. The scenarios you presented are logical and effective uses of the iPhone – the restaurant bill, finding items in the market, etc. The potential for these kinds of apps is endless. Just this week I was at the car dealership and saw that you can now remote start your car with your phone. Having been a 60s and 70s kid, these are the kinds of things that we saw on The Twilight Zone and Outer Limits and thought – that’s freaky and will never happen – yet here it is and we love it. The thing that concerns me is the potential for invasion of privacy. I HAD an app on my phone for Walgreen’s, but deleted it because every time I passed one of their stores, the app would start up and give me a pop-up with their specials, and there was no way to turn it off. I don’t like that the app had that kind of access to my phone. Great thought-provoking article, Avram!


  2. I think it very likely Apple will do something like this, Avram. This Christmas for the first time I completed an online purchase not from Amazon but with Amazon handling just the payment and giving me a one percent discount for the privilege. So this is fertile ground for both companies. It’s a logical extension, too, of Apple’s 64-bit strategy that I’ve been describing for awhile. And of course they are a great financial power in their own right. Remember that with $100 billion trapped offshore Apple has to find creative ways to put that money to use and this could be one of those. Just think of the liquidity they could throw into the retail credit markets if they chose to do so. But knowing Apple it will also come later than you think — in 2015, not 2014.


  3. Great analysis, Avram. I agree with all your observations. However, the question about Apple is not whether they *should* or *could* do it. It’s more about whether they *will* do it. I think we have learned in the last few years, esp. post Steve, that they are just not doing stuff that everyone agrees they can and should. It seems to me they are “stuck” and don’t have the hutzpah to do the anything big, and don’t have he execution to do anything small (Apple TV, wearables) in a reasonable timeframe. So like movies at the Oscars, whether Apple deserves to achieve all that you say, or whether Apple will in fact achieve it, remain different questions.


  4. Thanks Diane. Bob, I agree that it will happen slowly. I should have also mentioned the roll that the iWatch will play in all of this. Bart, you are probably right. They no longer have courage. That is why my money is on Amazon. I am neutral on Apple right now.


  5. Pingback: It’s not big brother that should worry you, it’s little brother, the spy in your pocket. | Two Thirds Done

  6. More they push towards commercial gain, more iSheep will realize that it is actually very ordinary sheep. However, it seems that their global market is more populated by purchasers with means that rather buy intangible value than functionality. How long this situation will last it is hard to predict but it may change in a snap (or as quickly as they became popular)


  7. Pingback: Your wrist: The most important real estate on the earth and why Apple wants to own it now. | Two Thirds Done

  8. Pingback: It is not big brother that you have to worry about: It is the spy in your pocket. | Two Thirds Done

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