More than two-thirds of McDonald’s business is earned through its drive-thru operations. And internal figures suggest that nearly ten percent of many franchisee’s 2018 sales were attributed to third-party deliveries from: Uber, Amazon, Delivery Hero, Zomato, Postmates, Deliveroo, Swiggy, DoorDash, and Grubhub.
In this post, I’ll try to deduce the reasons why Apple and Goldman Sachs decided to collaborate on Apple Card. What follows in this entry is my deduction from available information and based on my experience working in the credit card industry. First, I’ll touch on the concept of cobranded credit cards and what brands and issuers often get out of a partnership. Second, I’ll talk a bit about Apple Card. Last, I’ll give my thoughts on why Apple and Goldman Sachs may benefit from their relationship. These are my own thoughts only and if you have any thought or material that can contribute to the topic, I’ll appreciate it that you share with me.
Cobranded Credit Cards
You probably have seen a few cobranded credit cards before at popular stores or when you fly with domestic airlines
So, what exactly do brands and issuers get for working on cobranded credit cards?
Every brand wants to establish as close a relationship with consumers as possible. One of the popular methods is through a credit card with exclusive benefits. However, brands would be subject to a lot of regulations if they issued credit cards on their own. There would be also a lot of expenses that’d go into servicing accounts. No brand wants that extra burden in addition to running their own business. That’s why they need financial partners.
To compensate an issuer for bearing the risks and operational expenses, a brand usually takes care of the cost of exclusive brand-related benefits. For instance, shoppers receive 5% cash back at Target when they use Target credit cards. I don’t know the exact detail, but my guess is that Target will be responsible for most of the cash back, if not all. Additionally, brands can assist issuers with acquisition costs. Issuers spend thousands of dollars, if not much more, every year to acquire new customers. Brands have an already established relationship with their customers, brand awareness and financial resources that can help issuers in this regard.
On the other hand, issuers are responsible for dealing with financial regulations and servicing accounts. That’s why issuers try to sign as many partners as possible to leverage economies of scale. A small number of partners wouldn’t make operational expenses justified.
Issuers also have to compensate partners for leveraging their brand names. Agreements between issuers and partners vary on a case-by-case basis, but I wouldn’t be surprised if an agreement featured:
An issuer pays a partner for each new acquired account and a smaller fee for a renewal
An issuer pays a partner a fixed percentage on total purchase volume
An issuer pays a partner a fee when accounts make the first purchase outside partners’ locations
What do issuers get in return?
Issuers, of course, keep all financial charges and fees such as annual fees, cash advance fees or late fees. Besides, issuers can generate revenue from interchange fees. In every transaction, a merchant bank which works with a merchant has to pay an issuing bank which issues a credit card to the consumer who shops at the merchant a small fee for accepting credit cards as payment. Payment networks like Visa or Mastercard act as a middle man between a merchant bank and an issuing bank, and decide how big the fee, which is called interchange, should be. What I just describe is a gross simplification of what transpires behind the scenes in a couple of seconds or less in a transaction. There is a lot more to it. Essentially, for the sake of simplicity, just imagine that for every transaction, an issue bank receives 2% of the transaction volume in interchange fees. So if an issuing bank handles $1bn in transaction a month, that bank will get $20 million in interchange fees. Lastly, as mentioned above, issuers can also leverage partners in terms of acquisition costs.
– Service accounts and handle regulatory compliance – Bear risks of charge-off – Compensation to partners
– Additional rewards expenses as selling points to consumers – Assistance in acquiring new accounts
– Financial charges and fees – Interchange fees – Marketing leverage from partners’ outreach
– Deepen relationships with customers – Compensation from issuers
Apple Card is an Apple-branded credit card issued by Goldman Sachs. You can only apply for an Apple Card via your wallet app on Apple-produced devices such as iPhone or iPads. The Card is so synonymous with Apple that you can barely hear about Goldman Sachs.
Apple Pay’s selling points include:
Simple application process
Premium look and feel
Unlimited 2% cash back when you pay with Apple Card using your Apple Watch or iPhone
3% cash back from select merchants such as Uber, T-Mobile, Nike, Walgreens, Duanereade and of course, Apple itself
Security as each transaction must be verified either by Touch or Face ID
Apple and Goldman Sachs promise not to sell consumer data with a 3rd party for marketing purposes
What’s in it for Apple and Goldman Sachs in launching this Apple Card?
Goldman Sachs isn’t know for consumer banking. It’s known for its investment banking business. Apple Card is the first attempt at consumer banking from the renowned company. As the issuer, Goldman Sachs (GS) will have to deal with all regulatory and security challenges while bearing the risk of charge-off. They will also take part in servicing accounts, but the work is shared with Apple as Apple Customer Service agents handle upfront communication with users. Since Apple Card has no fees whatsoever, what GS can benefit from this collaboration, I allege, include
Insane marketing power from Apple and its global footprint in the form of millions of installed iphones
I imagine that if this collaboration succeeds, GS will want to sign more partners to achieve economies of scale, leveraging what they learn from operating Apple Card
Apple allegedly wants to launch Apple Card for two reasons: 1) to deepen relationship with users, to motivate them to buy their hardware more 2) to generate more service revenue. As a technology partner, I don’t imagine Apple will have to deal with fraud, regulatory or security concern. In exchange, Apple provides marketing outreach and technical assistance in incorporating Apple Card into its ecosystem. Additionally, from what I read, customers who need technical assistance will reach out to Apple Customer Service agents. Hence, that’s also what Apple brings to the table. Also, the company may allegedly be responsible for Apple-only rewards and interest free payment plans when customers buy Apple products. In terms of rewards with 3rd parties such as Nike or Uber, I can’t find any relevant information. If I have to guess, my money will be on Apple taking the bill for extra rewards as well.
– Service accounts and handle regulatory compliance – Bear risks of charge-off – Compensation to partners
– Market Apple Card to users – Offer technology to make the card work with Apple Pay and its devices – Help service accounts 3% cash back on Apple products and services – Interest-free payment plan for customers when buying Apple products
– Interchange fees – Leverage marketing power from Apple and its footprint
– Deepen relationships with customers – Compensation from Goldman Sachs
According to Apple, the number of transaction through Apple Pay has grown substantially since it was launched. As of Jan 2020, the annual run rate for Apple Pay reached 15 billion transactions. Not all Apple Pay transactions are through Apple Card. The card debuted only in August 2019. Since Apple doesn’t offer details on Apple Card transactions, let’s run some scenarios by assuming that the annualized transaction count for Apple Card is 500 million to 2 billion. If average ticket size (dollar amount per transaction) ranges from $20 to $60, the transaction volume will be as follows
Annualized Apple Card Transactions
Interchange fee rate varies depending on numerous factors. However, if we assume that the rate is 2% of purchase volume, based on the scenarios above in Table 3, GS would receive the following as interchange fees
Annualized Apple Card Transactions
As you can see, the more Apple Card transactions, the bigger the interchange fees for GS. Given that Apple has legendary marketing prowess, an installed base of millions of devices and rising demand for contactless payments, the numbers may even grow bigger in the near future.
On Apple’s side, it is reported that Apple takes 0.17% cut on each Apple Pay transaction. In terms of Apple Card transactions, I think the cut will be even bigger, but won’t be bigger than GS’ interchange fee rate. Since we assume that GS receives 2% in interchange fee rate, let’s say Apple receives somewhere from 0.2% to 1% on purchase volume. How much would Apple receive, using the lowest purchase volume for each scenario of transaction count (first row respectively in Table 3)?
Annualized Apple Card Transactions
A few days ago, Apple and Walgreens announced that new Apple Card customers would receive $50 bonus in Apple Cash after spending at least $50 at Walgreens using the card. The promotion is valid till the end of June. It signals to me that 1) Apple wants to acquire more customers for Apple Card and 2) Apple may also receive a fee whenever a new customer comes on board. I don’t imagine $50 bonus would be paid for Walgreens or GS. Why would they do so when there is no sustainable benefit? If Apple shoulders the cost of the acquisition bonus, or at least most of it, it will likely not make financial sense to just rely on fees from card purchases to recoup the investment.
In sum, I hope that the information I shared and my thoughts are useful in helping you understand more about the credit card world that is complex yet fascinating. I spent quite some time thinking about the collaboration between Apple and Goldman Sachs as the presence of a tech giant and an investment bank in the consumer banking area is quite interesting. There isn’t much information out there so I would love to learn from whoever has useful information to contribute to the topic at hand.
Disclaimer: I own Apple stocks in my personal portfolio
Tech giants reported their earnings this week and proved how resilient their businesses are amid arguably the most challenging environment ever. In this post, I’d like to demonstrate with visuals how important AWS is to Amazon, and how China, Wearables and Services are to Apple while it has become less of an iPhone company.
Since the stay-at-home order started around the globe, demand for videoconferencing has skyrocketed. Facebook even introduced a new video service for its users. What has caught my interest, though, is the battle between Zoom and Teams by Microsoft. Zoom stock has surged significantly for the past two months, especially after it reported that it had 300 million daily active users. Or so we thought
Zoom has confused the comparisons, though. Zoom originally stated it had “more than 300 million daily users” and that “more than 300 million people around the world are using Zoom during this challenging time.” Zoom later quietly deleted these references from its blog post, and it now only claims “300 million daily Zoom meeting participants.”
The differences are important, as is Zoom’s transparency around them. Daily meeting participants counts multiple meetings, so if you have five Zoom or Teams meetings in a day, then you’re counted five times. Zoom has not yet revealed exact daily active user counts, and it looks like Microsoft could be a lot closer to Zoom usage than many had assumed.
For comparison, Microsoft announced today that it reached 200 million daily meeting participants in April. Since the two use the same label, does that mean Zoom has taken Teams’ lunch? Not quite there yet.
The daily meeting participant count can be misleading. For example, Teams doesn’t have a limit on call duration, to the best of my knowledge, while Zoom puts a 40-minute limit on calls that involve more than three participants. So if the participants are willing to set up another call after the free 40 minutes expires, it will bloat up the daily meeting participant count, even though it’s still one meeting that has the same folks involved.
Daily usage can be misleading as well. For instance, I use Jabber at work and it is powered up automatically on my work station. If I don’t interact with anyone on the app, does it mean I am among the daily users still? To be fair, the two companies don’t elaborate on this, but there is one comment from a Microsoft executive
It’s been phenomenal, if I’m honest with you. Let me just start with the DAU thing because there’s a lot of needling on this and we define the DAU. Daily active user for us is the maximum number of users who take an intentional action over a 24-hour period. That’s really important for me to hit. What we call passive actions do not count. So auto boot does not count. Minimizing a window does not count. Closing the app does not count. We also got a lot of questions about that. Skype does not count. So when we release our numbers, we just don’t feel like we want to get in the weeds of kind of argue with people, but the DAU very real.
Another reason is the mix of added users/usage. In its latest investor call in March, Zoom’s CFO commented the following
Granted, there may have been more development since the comment. Frankly, it’s unclear how the surge in usage benefits Zoom financially without the company’s disclosure. Nonetheless, it’s not surprising that the majority of the increased usage comes from the free tier.
On Teams side, it’s not particularly providing a clearer picture either. Back in January, during the Q2 earnings call, Microsoft announced they had 20 million daily active users. 3 months later, the figure stands at 75 million. Quite an achievement. But like Zoom, Microsoft has a free tier that allows video or calls. As a result, barring a comment from the Seattle-based company, it’s not clear how many Microsoft added as paying customers.
The point is that it’s really hard to determine which videoconferencing tool is the better performer between the two leaders Zoom and Teams. The way data is reported by the two companies makes it really challenging to have an apple-to-apple comparison.
In this post, I want to share with you what I found while I was doing some research on credit card trends.
Tap to pay
As of March 2020, one in three card present transactions by Visa is tap to pay, up from one in four a year ago (1)
In 2019, excluding the US, 55% of Visa transactions were contactless (1)
In the US, there are 145 million contactless credit cards in circulation and Visa expects that the number will reach 300 at the end of 2020 (1)
17 out of the top 25 issuers are fully issuing tap to pay cards. 8 out of the top 10 merchants are accepting tap to pay. 60% of all in-store transactions in the U.S. are now taking place at terminals that are enabled for tap to pay. (1)
Globally, tap-to-pay has resulted in 20% life in card transactions. (2)
In the US, tap-to-pay cards led to plus 4 more transactions per month and $160 increase of spend per month (2)
“CEMEA now has the highest tap to pay penetration of any Visa region. 2 of our CEMEA countries, Russia and Georgia, are in the top 10 tap to pay countries in the world. Georgia is, in fact, number one, with an incredible 96% tap to pay penetration.” (2)
77% of active terminals in South America are contactless-enabled. Tap-to-pay penetration was doubled in one year. Chile and Costa Rica have a leading 50% contactless penetration
“For example, on transit for London services, we saw double the transactions and 70% higher growth in spend by tap to pay transport for London users versus those not using tap to pay. In New York City, Visa is partnering with Chase to promote tap to pay in and around subway stations that are contactless enabled. As a result, Visa has crossed 4 million taps within the MTA system and contactless payments will be accepted system-wide by the end of 2020.” (2)’
In Asia Pacific, tap to pay penetration increased from 29% in 2016 to 41% in 2019. Post activation, tap-to-pay card saw 3.8 times more transactions and 1.8 times more spend per card. Specifically, tap-to-pay cardholders made 3.9 times more transactions at fast food restaurants and 2.3 times more at supermarkets and grocery stores
On average, an American makes 12 cash transactions a month. 55% of all transactions under $10 were made in cash (2)
In daily segments such as gas or supermarkets, card penetration stood at 60% for the US (2)
Retail digital spending has grown at CAGR of 23% since 2016, yet it still only makes up 14% of global retail spending (2)
Cash and check penetration remains at 92% for Sub-Saharan Africa, excluding South Africa (2)
“The macro trends are incredible. It (Sub-Saharan Africa) has the fastest-growing population among major regions, double the global average and half of sub-Saharan Africa is under 18 years of age. It has 46 countries, and 6 of which are in the top 10 fastest-growing economies in the world. The market is still greenfield. Cards have only penetrated 3% of PCE, and 2/3 of the population does not have a bank account. Yet Africa is home to nearly half of all mobile money users. Sub-Saharan Africa is mobile first. People use their mobile phones daily to make and receive payments. This opens immense, immediate and long-term opportunities for Visa.” (2)
Amazon isn’t exactly known for its design capability, yet I am relatively pleased with the Kindle App on iOS 13. Below is a brief comparison between the two apps in terms of features and UX.
The Kindle app offers different options to adjust the font, the theme, the spacing between rows, the brightness and the view.
With the exception of the ability to change spacing between rows, all the other features are very similar to what iBooks provides. Personally, I appreciate the green theme available on Kindle.
Looking up and translating words
Additionally, readers can translate, look up unknown words and learn more about them via Wikipedia inside the Kindle app handily. All readers need to do is to select the word and the features are automatically presented.
On iBooks, it’s a little bit different. After clicking on a word and choosing “Look up”, readers will be taken to a page that includes various options related to the word in question
It’s a little bit frustrating to take and copy notes on iOS. As the short video shows, users have to select a block of text manually again for any use.
If users want to use the copied text somewhere, iOS has a default footnote that comes with every single copy. The note itself reminds users of the title and author at hand, but it creates another step that becomes annoying if repeated.
On Kindle, taking notes is a bit easier. A whole block of text can be chosen and copied with only a touch of your fingertip. Additionally, there is no default footnote as in the case of iBooks.
Kindle has one feature that is absent on iBooks: Flash Cards. It’s pretty handy for those that like to take notes and come back later to test their memory.
In short, the two apps provide very similar core functionalities. The difference comes, I suspect, mainly from special use cases. Personally, because I often copy quotes and notes from books to this blog in my book review entries, I prefer Kindle to iBooks.
I have been on Catalina for almost a week and the experience has been nothing short of a disaster. I am using a Macbook Pro 2012 with 8GB RAM and a 2.9 i7 chip. It was running smoothly with Catalina’s predecessor: Mojave.
However, since I upgraded to Catalina, not only is my computer running more slowly, but I also have issues with a variety of apps. Even though I paid for my CleanMyMac, here is it asking me to upgrade because of Catalina
I am supposed to work remotely today and it requires using a VPN, which in my case is Citrix. Here is what my colleague in IT department told me this morning
My Snagit keeps freezing and crashing, prompting me to download another screenshot application.
Here is what my friend sent me this morning as well
I can’t remember the last time I was this upset with a Mac OS update. I hope that Apple will pull it together and release a new version that fixes all the issues
Disclaimer: I own Apple stocks in my personal portfolio
I got my Apple Card this weekend. While I don’t have intention to use the physical card itself due to its low cash back (1% compared to the standard 2%), I am happy with the how easy the application and activation of the card is.
To apply for the card, you only need to have an eligible phone (iPhone 6 and later I believe), open the wallet application, fill in some basic information, take a photo of a valid ID such as State ID or Driver License and be done with it. The application is processed within seconds. When I applied for other credit cards, the process was a bit more tedious. Online forms and sending physical proof of identity are usually required. With Apple Card, everything is done via the Wallet app, right on the phone.
To activate an Apple Card is even easier. The screenshot below shows all you have to do to activate it
Connect your phone to Wifi, hold it close to the package Apple sends and that’s it. Your card will be activated.
With Apple’s appeal, marketing prowess and a sleek design, I think there will be a lot of activations. Yet, I doubt the physical card will be used much. The benefits are inferior to what the market offers. I won’t be surprised if Apple and Goldman Sachs work together to give users a reason to use the physical card more often. Nonetheless, I am pretty pleased with how I came to receive the card.
After years of delaying a phone upgrade, I finally gave in when my old iPhone 5S’s battery dropped from 50% to less than 5% after one phone call. I bought a new iPhone 11 last Friday at an Apple Store and wanted to share a few thoughts after using it for almost a week since I doubt that I will have major other use cases later on. It’s worth noting that while I was standing in line to get the new phone (and it’s a long line), I was pretty much one a few people who stood there to get the 11. Most customers were there to get the Midnight Green color which is only available on 11 Pro and Pro Max. I won’t be surprised to see that the color is the best selling iPhone this year. Apparently, Walt Mossberg, a famed tech journalist, had pretty much the same observation
The camera on iPhone 11 is fantastic. It can take photos with dim lights and photos have remarkable quality. I am not a photographer and I suck at making adjustments for photos, but these are some that I have taken so far
FaceID works when my face isn’t directly in front of the camera, when I lie on my bed at night with only the reading lamp on and when I have sunglasses on. You can choose to set up FaceID so that it will work even when your eyes are closed, even though for security reasons it is not recommended. The feature facilitates log-ins and payment seamlessly, something that a person who upgraded from iPhone 5S very appreciates
No notification while driving
The phone’s default setup prevents notifications from app while you are driving. If you are on a train or bus, you can manually turn it off easily. If you just go about your day and drive without giving it much thought, don’t be surprised that you won’t receive alerts from your friends.
Blocking unknown callers
There is a feature that blocks calls from numbers that are not in your phone book. This option; however, may be annoying if, for instance, you are waiting for a call from Google to verify a log-in like I sometimes do, due to the two-step authentication security feature.
I am not a heavy phone user in a sense that I don’t listen to music much on the new phone yet and I don’t play games. So even though my battery lasts more than a day with all chat messages, Twitter, Facebook and maps, it may not be a practical true yardstick of the battery life. Nonetheless, if your use cases are similar to mine, the phone’s new battery is pretty awesome.
Because iPhone is one of the most covered products and Apple one of the most scrutinized companies, I am sure there are others that have reviews in depth. For the simple use cases and features that fit my life, the phone has been great. So far.
Disclaimer: I own Apple stocks in my personal portfolio.
First of all, what is 5G? 5G is generally seen as the fifth generation cellular network technology that provides broadband access (Wikipedia). The technology, in theory, allows for support for many more devices in the same area and much faster speed than the current 4G technology. It has been touted as one of the core components in our future society and received a lot of hype in the past few years. Here is what Loup Ventures has to say about when 5G is going to be commonly available:
On June 28th, T-Mobile will be the 4th US carrier to “launch” 5G in the US with 6 initial cities. While encouraging, we’re still in the buildup phase, likely two years away from the average consumer using 5G. To put this into perspective, we believe, by the end of 2022, about 75% of the US population will have access to 5G, essentially 2 years behind AT&T’s recent estimate of roughly 66% by the end of 2020.
Loup Ventures Newsletter 29th June 2019 Issue
But are we though?
Wired has a great article on the different approach the US chose for 5G adoption, compared to other countries. Here is a quote that summarizes well such a difference (a bit long)
“…The traditional sweet spot for wireless service has been in what we call low-band or mid-band spectrum. This is between 600 MHz and 3 GHz. For a long time, these airwaves were considered beachfront property because they send signals far. In other words, they cover wide areas but require little power to do so. This makes them especially attractive for service in rural areas, where technology that can reach more people with less infrastructure makes greater economic sense.
For 5G, however, the United States has focused on making high-band spectrum the core of its early 5G approach. These airwaves, known as “millimeter wave,” are way, way up there—above 24 GHz. They have never been used in cellular networks before, and for good reason—they don’t send signals very far and are easily blocked by walls. That means they are very expensive to build out. On the flip side, these airwaves offer a lot more capacity, which translates into ultrafast speeds.
The United States is alone in this mission to make millimeter wave the core of its domestic 5G networks. The rest of the world is taking a different approach. Other nations vying for wireless leadership are not putting high-band airwaves front and center now. Instead, they are focusing on building 5G networks with mid-band spectrum, because it will support faster, cheaper, and more ubiquitous 5G deployment. Take China, which allocated large swaths of mid-band spectrum for its carriers last year, clearing the way for deployment in a country that is also home to Huawei, the largest telecommunications equipment supplier worldwide. South Korea and Australia wrapped up an auction of key mid-band spectrum last year. At roughly the same time, Spain and Italy held their own auctions for mid-band airwaves. Austria did the same earlier this year. Switzerland, Germany, and Japan also auctioned a range of mid-band spectrum just a few months ago. The United States, however, has made zero mid-band spectrum available at auction for the 5G economy. Moreover, it has zero mid-band auctions scheduled.” –
In short, to access the very high-speed 5G in the US, you need to live close to the towers. The farther you live from them, the worse the connection will be. All would be OK if it were easy and cheap to build those towers everywhere. But it’s not.
This is the paradox of 5G, the collection of technologies behind next-generation wireless networks: They require a gargantuan quantity of wires. This is because 5G requires many more small towers, all of which must be wired to the internet. The consequences of this unavoidable reality are myriad. The 5G build-out, which could take more than a decade, could disrupt our commutes, festoon nearly every city block with antennas, limit what cities can charge for renting spots on their infrastructure to carriers on which to place their antennas, and result in an unequal distribution of access to high-speed wireless, at least at first.
In a 2017 report, Deloitte Consulting LLP principal Dan Littmann estimated that it will take combined carrier spending of between $130 billion and $150 billion in order for most Americans—including those in rural areas—to have a choice of providers of high-speed broadband and 5G wireless. Marachel Knight, the senior vice president in charge of rolling out 5G at AT&T, says her company estimates it will take a decade to completely build out its 5G network.
The driving force behind this enormous build-out is that 5G networks don’t work like previous wireless cellular networks. Where 2G, 3G and even 4G rely on large towers with powerful antennas that can cover many square miles, the shorter-range, higher-frequency radio waves used by 5G networks—essential to their ability to deliver the 10- to 100-times faster speeds they promise—mean that 5G networks must have small cells placed much closer together.
Typically these small cells must be placed about 800 to 1,000 feet apart, says AT&T’s Ms. Knight. Small-cell antennas are typically the size of a pizza box, but can be much larger, and require both a fiber-optic connection to the internet and access to power. They go wherever there’s space: on buildings, new 5G-ready telephone poles and, often, retrofitted lampposts. In 2018, the U.S. had 349,344 cell sites, according to CTIA, a wireless industry trade organization. The organization estimates that—to achieve full 5G coverage—carriers will have to roll out an additional 769,000 small cells by 2026.
In a nutshell, I don’t think we are going to have 5G for the majority of Americans soon. There may be a portion of the population who fortunately will have access to the technology. The rest will have to wait till the infrastructure is amply built.
When it comes to hyped technology, I think it’s always a good idea to be vigilant, avoid the hype, go into more details and take a more conservative stance. We don’t lack examples of techs that have been hyped for years but are nowhere near to being common: AI, autonomous vehicles, 5G…
Heck, a lot of Americans don’t have access to Internet