Gene Munster: ‘A product only Apple could pull off’

Goldman Sachs is the issuing bank and Mastercard provides the payment network, but Apple owns the customer relationship.

From a note to Loup Ventures subscribers—the second to land on my desktop today:

The Apple Card brings consumer lending to a digital-first wallet. The card itself is not all that compelling. In fact, the card is more like a dongle that makes your digital wallet compatible with out of date point of sale systems.

In April, we published Apple’s Brand Promise Extends to the Wallet. In it, we wrote:

Apple’s brand promise is a secret weapon. The company’s brand has long stood for ease of use, quality, attention to detail, and simplicity. Their brand promise, in turn, has always been that ‘it just works.’ Increasingly, Apple’s message focuses on privacy and security. This shifts their brand promise from one based on ease of use to one based on trust.

That brand influence has moved beyond consumers and is increasingly influencing institutions, local governments, and healthcare providers to find new ways to work with the company. In addition to their tight hardware/software integration, Apple’s evolving brand will help the company build the most comprehensive digital wallet.

Central to Apple’s ability to offer the benefits of privacy and security is the company’s ownership of the tech stack, from hardware to software to services. The value of the strategy is obvious with Apple Card: complete ownership of secure payment devices with default financial software and services.

With a proprietary marketing channel (push notifications!) into a billion customers, it’s reasonable to assume that any one of Apple’s new services can drive significant incremental revenue. However, growing the ecosystem and making it sticky will still trump incremental revenue. After all, Apple is in the business of maintaining and satisfying an increasingly valuable base of recurring customers.

My take: Apple’s brand. Apple’s stack. Apple’s billion customers. Munster:

Goldman Sachs is the issuing bank and Mastercard provides the payment network, but Apple owns the customer relationship, effectively white-labeling the behind-the-scenes credit card services. If Apple Card were to switch to Chase and Visa next year, cardholders wouldn’t care. 

Bingo.

24 Comments

  1. Gregg Thurman said:
    “However, growing the ecosystem and making it sticky will still trump incremental revenue.”

    TAH DAHHHH. It’s called earnings multiple. The more stable and predictable the income the higher the multiple.

    Look at Netflix. The Company has yet to turn a profit and is burning cash like a wildfire. Last earnings report (July 18) revealed a weakness in its subscribers base and NFLX has lost 19% of its value. This is a fundamental sell-off, just as AAPL will do nicely the more predictable and stable Apple’s income becomes.

    1
    August 30, 2019
    • Turley Muller said:
      Gregg, well said. Apple has become so big that even if it increased revenues by what NFLX does in a year, it would only equate to slightly more than 5% growth., Thus, AAPL will have to depend more so on multiple expansion. Companies with revenue concentrated in a single product receive lower multiples. It’s exacerbated when that product is cyclical (product cycle, replacement cycle). It’s even worse if the market believes it is commodity product,.

      Services diversify Apple’s revenue mix.They are predictable and sticky, along with a synergistic effect on hardware due to lock-in benefits. If Apple can continue to grow Services revenue, multiple expansion should follow. Plus, GMs.are about double of that of hardware, and as Service’s share of total revenue increases, should lift margins, hence EPS. Higher EPS x higher multiple = much higher stock price (compounding effect- 50% increase in both EPS & P/E results in 125% increase in price, not 100% ).

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      August 31, 2019
  2. Mordechai Beizer said:
    I have my Apple Card and it is easy to use, easy to pay, easy to see what’s going on except for one thing. How do I export my transaction history to my personal financial software? Seems to be something missing.

    0
    August 30, 2019
    • John Konopka said:
      I’ve heard that at the end of the first payment period when you tap the card in the wallet and tap … to get more info there will be an option to get a PDF statement. I don’t see it yet.

      1
      August 30, 2019
      • Mordechai Beizer said:
        PDF Statements are nice but that still doesn’t get the data into Quicken, Microsoft Money, or Excel. (Yes, some of us still use Microsoft Money.)

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        August 30, 2019
  3. Mordechai Beizer said:
    Just confirmed it by speaking to an Apple Card Specialist at Goldman Sachs. You can’t get your data out.

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    August 30, 2019
  4. Gregg Thurman said:
    “Just confirmed it by speaking to an Apple Card Specialist at Goldman Sachs. You can’t get your data out.”

    Sounds like a feature that would be attractive to a great many Apple Card users. Can’t imagine Apple overlooking this for very long.

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    August 30, 2019
    • Fred Stein said:
      Yes. This is the only ‘it just works’ bit that is missing. Intuit added AI (so they claim) features that can automatically sift through your CC charges to suggest those that are business expenses and automatically enter them correctly. Apparently this is a big help to small business especially sole proprietorships, realtors, consultants, etc.

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      August 30, 2019
  5. Fred Stein said:
    It’s funny. Only Apple gives the card holder 100% security of the CC number. There’s no record of it. not on paper, not on a vendor’s back-end, not on the card itself. I’ve explained this to folks who ask, “What’s great about Apple payments?” Eyes glaze over. Yet brands like JC Penny and Experian have been breached.

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    August 30, 2019
  6. James Dean said:
    Oh yee of little faith. Dominance.Apple never leads, they just make up for the fact of every other company doing a crappy job. if you even think Tim et al does not have a long term game plan, wake up…

    1
    August 30, 2019
  7. Jerry W Doyle said:
    Apple, similar with other humongous revenue companies, seeks to find ever new paths to grow revenue for satisfying shareholders and WS. I see where Walmart now is adding dentists, optometrists and mental health counseling facilities within Walmart store operations. Talk about “one-stop” shopping. These new revenue streams will be Walmart run operations.

    Walgreen Boots and Kroger are partnering to add more select groceries items in Walgreen stores, such as meats, dairy and produce items. I suspect that we will see a merger or acquisition between the two companies going forward.

    “… Goldman Sachs is the issuing bank and Mastercard provides the payment network, but Apple owns the customer relationship, effectively white-labeling the behind-the-scenes credit card services. If Apple Card were to switch to Chase and Visa next year, cardholders wouldn’t care.”

    Question! As Apple enters the embryonic stages of the financial services industry, then why doesn’t Apple pursue a long term operational strategy of exploiting the financial services industry fully through establishing its own payment network, using its vast cash horde to become its own issuing bank, developing its own financial software to go head-to-head with Quicken, effectively streamlining the complete operational side of its Apple Pay, Apple Card and grow its financial services division? As much as I love Quicken, I gladly would jump into a complete Apple financial services ecosystem for personal and small business operations.

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    August 30, 2019
    • James Dean said:
      This is where Apple is going, slowly, methodically, and with great abandon.

      1
      August 30, 2019
  8. James Dean said:
    I applaud the relationship with Goldman Sachs. Brilliant.

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    August 30, 2019
  9. James Dean said:
    I applaud the relationship with Goldman Sachs. Brilliant. It is a future.

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    August 30, 2019
  10. James Dean said:
    I applaud the relationship with Goldman Sachs. Brilliant. It is a future. Tis Bright.

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    August 30, 2019
  11. James Dean said:
    quake in your boots PayPal, Chase Pay, et al. this a fight you will not win.

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    August 30, 2019
  12. Gregg Thurman said:
    “then why doesn’t Apple pursue a long term operational strategy of exploiting the financial services industry fully through establishing its own payment network, using its vast cash horde to become its own issuing banK”

    I can see, within 5 – 7 years, Apple buying MasterCard. Instead of renting MC’s backbone Apple could own it AND MC’s client base.

    Think of how many of those MC holders could/would be converted to Apple Card AND become iPhone owners/Apple Services subscribers (if they weren’t already). Apple doesn’t have to create anything, just put the Apple customer experience in play for several tens of millions of MC holders.

    1
    August 30, 2019
    • Jerry W Doyle said:
      @Gregg Thurman: I agree fully!

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      August 30, 2019
  13. Neil Shapiro said:
    I canceled my card a few days ago. Apple does NOT own the customer experience. At least not the customer support. I had what I thought was a very simple question on one-time payments. So, I called Apple. I have had a lot of experience with Apple support for various products in the years since I first bought an Apple II. Therefore, when I say that it was the worst experience I have ever had with Apple Support, well, that is saying a mouthful!
    The person I spoke with seemed to be completely unknowledgeable about the Card. And even their attitude was more unfriendly than I have ever experienced with Apple. They basically sent me an email with tons of information on every topic about the Apple Card. Information I had, of course, already read. But I needed a clarification on one detail. The fellow who was already very unhappy that I had asked him to stay on the line while I looked at the email, well, he basically just told me to call Goldman Sachs. When I said I would need a number he told me to hold on and switched me onto a 15 minute wait for the Goldman Sachs “expert.” Well, the “expert” was even less up on the new Card than had been the Apple person.
    Halfway through the discussion with that guy I asked myself if I really wanted a card supported by Goldman Sachs? Would I have purchased the Goldman-Sachs Card? Would I have signed onto such a card even with an app for it on the Apple store? No. So I asked to cancel the card. Of course I saw the next day how to do this is the app but now it led to a 10 minute hold and then was canceled.The next day the physical card arrived and I had to use a file on my Leatherman Tool to destroy the chip and stripe. Maybe I could have just used rough denim.
    Maybe when Apple has themselves together on this I will reopen my account. But, for now, I am outta here (there?).

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    August 31, 2019

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