Been chewing on this one for a while. I like it, but it’s more about writing something so when the future happens I can point to something and say, I knew it!
There’s an analogy between Amazon and Apple Card… and the opportunity for Apple Card is brilliant, but I don’t believe most people understand it. Most can’t see outside of today’s paradigm. But, if we examine how Amazon has marginalized Fedex and the other shippers, we will see how Apple will marginalize both Goldman Sachs and Mastercard (though those companies have made the right choice in partnering with Apple — this is a different analogy for another time).
I talk about Apple Pay and Apple Health a lot. Apple Health is a few years behind the Apple Pay roll-out. And, considering that Apple Health uses FHIR, I like to point out that Axway has a solution to add value… and we can assume that Apple Health will follow the trajectory of Apple Pay — meaning lots of countries and lots of care providers over the next few years. Don’t look at today… look at the trajectory to define the opportunity.
The Apple Card trajectory is obvious. But, what’s the disruption? What’s in it for Apple?
Amazon 1‑Day Delivery and Shipping
I like analogies. They help me tell good stories.
Consider Amazon’s stack.
They have an e‑commerce consumer layer on top of a logistics platform. Below logistics are the shippers — Fedex, UPS, and USPS. For the purpose of this post, this simplified stack works and is reasonable.
What’s happened over time?
Amazon used the existing shipping rails to deliver packages. They developed a logistics platform that enables them to gain deep insight into customer behavior and the logistics of delivering packages, as Fedex and the others fulfilled.
Then Amazon purchased 100,000 vehicles and overnight they compete with Fedex, UPS, and even the post office.
Why? What are they doing?
Simple. With the information they have at the e‑commerce and logistics layers, they know a lot about what customers are doing. And, they’re going to lower their shipment costs by doing the delivery themselves.
It’s kinda like cloud computing… use your own infrastructure, and when you need more capacity, use the cloud which gives you on-demand capacity (for a price).
Well, with what Amazon knows at the higher layers… Amazon is going to deliver the packages that have a low cost of delivery themselves, and leave the customers who are expensive to service to the 3rd parties who, presumably, are contracted to deliver regardless of how expensive the delivery is.
Amazon is going to bypass the Fedex’s of the world with their own infrastructure, but give the packages that are unprofitable to deliver to third parties (who they’ve negotiated into fixed terms). These third party shippers bear the burden of delivery.
Fedex isn’t dumb. They’ve broken with Amazon as a result.
How does this relate to Apple Card?
If history doesn’t repeat, it certainly rhymes.
There’s a similar stack for Apple Pay, but instead of the shippers it’s the payment infrastructure.
And instead of the logistics layer, it’s Goldman fulfilling credit card logistics (customer support, card management, statements, etc).
Apple is at the “payments” layer, Goldman at the Logistics layer, and Mastercard at the Payment rails.
Can we guess what’s going to happen in the future?
No guessing required, really. Over time, Apple is going to use Apple Cash at the top layer to fulfill payments. Apple is feeding this by providing (about) 2% cash back to a Debit card at the top layer. There’s money at that layer, similar to Starbucks preloaded mobile cards. Most don’t know Starbucks has more preloaded cash on the books than most US banks!
So, Apple is going to look at customer payments behavior and take the “profitable” transactions and not pass them down to the payment rails (fulfilled by Mastercard).
It’s so obvious. Apple will keep the profitable transactions at the payments layer, and not pass them down to Goldman and Mastercard.
What does this mean? Not sure. Does Mastercard take a hit? Goldman? Or is this more about Apple Pay competing against Paypal? Does it foretell a cryptocurrency platform, or does (as with Amazon) just predict that Apple will fulfill payments inside their own system when it’s “profitable” to do so, and pass the “unprofitable” transactions to Mastercard for fulfillment?
In any case, it’s obvious that Apple wants to own the experience around payments… and personally, I hope they ladder up in to budgeting, and other areas of finance to make building family wealth accessible to more families (as I have tried to do with my book).
Just got an email from UPS. They’re offering me a reward to select a drop-off point that’s not my home. Obviously, to lower their cost of residential shipping. The contrast and directionality as compared to Amazon — who’s pushing from 2‑day delivery to 1‑day — is astonishing in that it’s so clear to see what’s happening.