How will Google respond to Apple Card?

Google has no need to follow Apple and will carve their own path in Financial Services and Commerce — a path likely leading them against Amazon not Apple

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Google and Apple are often compared as direct competitors, but when looked at more broadly they are significantly more different than they are the same. Apple’s a consumer device business- specifically an iPhone one, Google a services business — specifically an advertising one. Philosophically Apple adopts a dominate/disrupt approach and Google typically adopts more the role of an ecosystem extender and enabler.

These differences mean we won’t see Google copy Apple Credit. Apple Card was born from the need to sell more iPhones not help adoption of Apple Pay and “Google Card” would do nothing to impact Google’s advertising revenue. Google has a potentially rich opportunity to do something more radical and interesting in both financial services and commerce than launch a co-branded credit card.

Google vs Apple Business Models are fundamentally different

We are used to seeing comparisons between Apple and Google and they are direct competitors in many spaces but when you reduce it down to the bare bones they are fundamentally different businesses. Apple is a hardware company (really an iPhone company) and Google an ad company (62% of Apple revenue is from iPhone only 16% of revenue is from Services, 84% Alphabet revenue is from ads — this is a useful infographic).

The downturn in the Smartphone business is driving OEM’s including Apple to look at ways to use consumer credit facilities to prop up volume of sales by maintaining upgrade cycles. Increase the average upgrade cycle by a few months and the collective negative impact on smartphone OEM revenue runs into the tens of billions. Same number of people buying the same phones just holding on to them for longer. Using credit as a tool to smooth the consumers payments and remove price shock is a potentially powerful way to maintain sales volume — car manufacturers have been using credit like this for decades and a new top of the range smartphone is very quickly becoming almost as expensive as a car.

Apple Card is nothing to do with Apple Pay at least not in the sense that anyone at Apple was thinking at the time “how can we help drive penetration and adoption of Apple Pay” they were thinking “how can we sell more iPhones”. For more about the drivers of Apple Card read this.

Google simply does not have the same issues to solve for. Their device business is very small and peripheral to the main business of advertising and having a “Google Card” will do nothing to solve for higher growth in ad revenue.

Apple and Google’s Philosophies are radically different

Apple has always sought to dominate and disrupt the markets it chooses to enter whereas Google has generally worked to augment and extend the markets it enters. Apple Card marks a change in the already fraught relationship Apple has with the banks since the launch of Apple Pay.

Apple took a very hard line with the Banks and Payment Networks (Visa, MasterCard and Amex), similar to what it did with Carriers at the launch of iPhone. Large Carriers and Banks are not used to being told what to do, they are at the top of their respective food chains. Apple ignored this and dictated their own terms. Taking a portion of the interchange revenue from issuers and putting highly restrictive terms in place in terms of marketing whilst requiring banks to fund it.

For all of this the banks were relegated to being commoditized within Apple Pay, just another piece of card art to be selected from a list. The banks worst nightmare, being disintermediated from their customers by Fintech players.

Whilst Google Pay adopted a very similar go to market approach as Apple in terms of the lack of differentiation afforded to the banks (one banks Google/Apple Pay implementation is the same CX as any others) they did not do so quite as aggressively as Apple. For example they did not choose to seek to charge issuers and take interchange revenue from them. Google is therefore cost neutral for issuing banks whilst Apple is cost negative.

We have also seen Google more recently embrace alternative payment propositions within its ecosystem like PayPal. Something it’s hard to see Apple ever doing.

This difference in Philosophy and Business means there is no pressure for Google to follow Apple Card. It has rather more interesting opportunities to pursue in both payments/financial services and commerce.

Google Payments and Financial Services

It’s taken a while for Google to get a grip on the various Pay solutions it has launched but its now all under the single Google Pay brand. Google has not enjoyed standout success in adoption of Pay anymore than Apple or their direct competitors. If you want to read more on this you can here.

With Apple taking more of a lurch towards an even more antagonistic approach towards banks it opens an opportunity for Google to do the opposite and enable them. The banks in the US alone spend over $5bn a year on consumer marketing, incentives and rewards for credit cards, no single company can possibly match this.

The average US credit card customer has around 4 credit cards already, adding another one to the list is both expensive and unlikely to add disproportionate value to either party. By enabling banks rather than commoditising Google would be providing value add to the ecosystem rather than seeking to disrupt or compete with it.

Banks are struggling with big data and AI and Google is already working with some to help them with this. Banks need to accelerate the speed and scale of innovation to compete with and in many cases collaborate with emerging Fintech players (for example many banks struggle to absorb 3rd party API’s — their legacy infrastructure not built for it), Google could help accelerate this. Banks are concerned with commoditization and being bifurcated from the consumer experience, Google Pay could help, enabling customisation for issuers brands within the Google Pay experience, acting as a portal to the banks services rather than a barrier or layer on top of them.

Many of the pure play fintech services that have arisen over the past decade are increasingly diversifying and attempting to build a more platform approach building or aggregating a wide number of consumer and SMB services under a single approach. Google could do this on a much wider and more systematic scale, acting as an aggregator of and enabler for consumers and SMB access to a wide range of financial and banking services without having to create them itself.

Google and Commerce

Whilst Google Pay facilitates commerce through Payments Google has developed a seperate and much more vertically integrated commerce experience in Google Express. Google Express is, I suspect, a reaction towards the ever greater dominance of Amazon and the rapid rise of alternatives like Wish.com. It aggregates stores with a single shopping cart, checkout and free delivery much like Prime. However it’s only available in a limited number of countries.

Google Express is a great service but suffers from the normal problem of having to onboard merchants and that takes time and resources and scales slowly. When compared to Google Merchant Center, a database of merchants and their inventory to support shopping ads across all of Google and with an estimated >30m merchants globally, Google Express looks rather anaemic.

The really interesting question is how Google might bring these and other disparate merchant services together to create a potential rival of which Amazon might reasonably be expected to take note of and be concerned about.

No doubt the technical and organizational challenges to achieve this are considerable, as expected to achieve anything likely to challenge Amazon. But it’s a lot more interesting and I suspect ultimately mlre scalable in its impact to Google, than a Google Credit Card would ever be.

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