Apple Turnover
How Tim Cook reshaped payments – and what he leaves behind
When Tim Cook gives up the CEO job at Apple later this year, he will be remembered for many things. Over his tenure, Apple’s market value grew from $300 billion to over $4 trillion, driven by supply chain wizardry, capital management, product innovation (including AirPods and Apple Watch) and a focus on services. In his final year in charge, Apple is expected to sell 250 million iPhones, contributing to product sales of $350 billion, while generating another $125 billion from services like the App Store, music and TV subscriptions, Google traffic acquisition fees, cloud services, advertising and extended product warranties.
In the world of finance that Net Interest caters to though, Cook may be remembered for something else: his role in reshaping payments. When Apple shipped the iPhone 6 in 2014 with a near-field communication (NFC) chip embedded inside, it was, in the words of Capital One CEO Rich Fairbank, “a game changer in terms of security.” The chip allowed iPhone users to make contactless payments by holding their phone near a terminal. Crucially, it never transmitted actual card numbers – instead generating a one-time code for each transaction. Combined with fingerprint or face authentication, it was significantly harder to defraud than a physical card.
Cook’s initial motivation was to monopolise what people keep in their pants:
“We’re about making the user’s life better, making the experience better. We saw all the mobile payment stuff that had been done and none of it was making anybody’s life better. It was more about creating a business model for someone else to make money. We started with the user and we said, what do they really want? Well, nobody wants to carry a wallet. You don’t want another thing that you have to remember to put in your pants when you walk out the door. You don’t want another thing to lose. You don’t really want this card with exposed numbers on it that has a huge security risk on it. And so we fixed the security issue. Our system is much more secure than the traditional credit card system is.”
“We kept the thing that people liked, which is they do love their card. And we said, ‘We don’t want any of this data. So we’re not doing what other companies are doing. We don’t want to know what you’re buying. We don’t want to know where you’re buying it. We don’t want to collect all this stuff on Charlie [Rose, his interviewer]. I don’t want to know where you’re spending your nights.’ And so we firewall all the stuff — we don’t keep it, it’s not on our servers. And so we kept what’s great and fixed what wasn’t.”
Today, Apple Pay is used by 785 million people worldwide. It is accepted at over 90% of US retailers where it has a market share of 14.2% in online payments and 5.6% in in-store purchases. Cook said on his latest earnings call that last year alone, it eliminated $1 billion in fraud.
Having nurtured its growth, Cook has used Apple Pay as a springboard into other financial products. In 2019, he launched Apple Card, announcing that by “bringing together our hardware, software and services, we’re going to do…so much more, changing the entire credit card experience.” He also launched a peer-to-peer digital transfer service, a point-of-sale capability directly in the iPhone, a savings product, and he has flirted with Buy Now Pay Later. He has reined in his fintech ambitions over the past couple of years, but his successor may have other ideas.
To explore Apple’s footprint in fintech more fully, and the competitive advantage it has versus pure-plays like PayPal, read on.