Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should watch this week.
With a massive earnings week ahead in which 175 companies in the S&P 500 will report their earnings, Apple is perhaps the great unknown in the pack.
Despite shares falling almost 30%, the company managed to recover around half of that drop and now eyes the 200-day moving average in the $158 zone.
However, as with any company regardless of its size – Apple is not immune to the effects of global market trends. One of the current headwinds is inflation, which can decimate purchasing power over time as well as result in a major pullback in consumer spending for households.
Given that Apple’s products are towards the higher end of the pricing bracket, we could see these consumer concerns begin to come to a head.
Whilst this may perhaps concern some investors, they should also consider Apple's innovative approach, exemplified by their focus on health data and the launch of Apple Pay Later, when assessing their investment strategy.
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Not investment advice. Past performance does not guarantee or predict future performance.
The first ruling for this legal battle was decided on the 10th of September. Tim Sweeney, the CEO of Epic games posted on Twitter claiming that Apple had lied which created tons of fuss around the gaming scene.
Epic added a new patch to the mobile version of the game in August of 2020. With this patch, Epic added an external payment option through which players could buy Fortnite's in-game currency "V-Bucks". With this payment option, Apple would receive zero commission and Epic games would receive all the revenue. Some players found a way around it to just buy Fortnite accounts that have everything you need to play the game at the highest level.
Long before Fortnite was even released, the founder and CEO of Epic Games, Tim Sweeney, had a strong position against the 30% revenue sharing cut that digital storefronts like Steam, App Store, and Play Store take. Tim Sweeney argued that a revenue cut of 8% was more than enough for storefronts to generate profits. Tim Sweeny also stated that gaming console companies deserve the 30% cut because they spend enormous amounts on hardware and often sell them at a lower price than what it costs to produce them, in hopes of making a profit on revenue cuts from game sales.
Apple removed Fortnite after finding the external payment method that Epic introduced. As stated by Apple, this violated the terms of service agreement that Epic agreed on. Along with Apple, the game was also removed from Google’s Play Store.
As soon as Apple removed Fortnite from the App Store, Epic filed a lawsuit against Apple, stating that Apple had limited Epic's ability to compete and, both Apple and Google are maintaining an unlawful monopoly. Along with the lawsuit Epic also initiated a PR campaign to convince players that Apple should allow Fortnite to perform such actions as external payment methods.
On the 10th of September, 2021, the court decided in favour of Apple. The decision concluded that Apple is not considered a monopoly and did not engage in antitrust behaviour. On the 22nd of September, Tim Sweeny posted a series of screenshots of emails on Twitter showing the conversation between him. In the tweets, Tim Sweeny claimed that Apple and claimed that Apple had lied. However, the game is still not available on either the Apple App Store or the Google Play Store.
On Tuesday, the price of bitcoin crashed to its lowest in almost a month. The cryptocurrency fell from $52,000 to under $43,0000 at one point. An opposition politician accused the fall of causing El Salvador, one of Latin America’s poorest countries, to lose $3 million.
Major platforms such as Huawei and Apple weren’t offering the government-back digital wallet, Chivo, and servers had to be taken offline as they failed to keep up with user registrations. However, as the day went on, the digital wallet started appearing on an increasing number of platforms and was accepted by big companies such as Starbucks.
El Salvador’s government had given its citizens $30 each of bitcoin to encourage its adoption. The government believes that the cryptocurrency could save the country $400 million a year in transaction fees on funds from abroad. However, the BBC calculated this figure to be closer to $170 million.
As bitcoin fell 20%, over 1,000 protesters gathered outside El Salvador’s supreme court where fireworks were launched and tyres were set alight. Beyond accusations of financial instability, critics also say that the adoption of bitcoin in the country may fuel illicit transactions.
Apple saw $21.7 billion profit for the three-month period that ended in June, marking its best-ever fiscal third quarter. The company’s record-breaking performance was boosted by strong sales of the new iPhone 12.
Google’s parent company Alphabet has revealed second-quarter revenue of $61.8 billion and a profit exceeding $18.5 billion, a figure which stands at twice its profits for the same period last year. Google’s advertising revenues also rose 69% from last year.
Microsoft has also reported record-breaking revenues of over $46 billion for the quarter, a 21% rise compared to the same quarter last year.
As share prices have rocketed throughout the coronavirus pandemic, the collective market value of Apple, Google, Microsoft and social media giant Facebook, is now worth over a third of the entire S&P 500 index of America’s 500 largest traded companies.
Good tech firms rise because they create new value. 15 years ago, Amazon was a mystery – what was the point in a delivery company not making any money? Apple was building a niche with new gizmos like the iPod, while Facebook was one of many banal social media sites we could hook up on. Uber and AirBnB didn’t exist. If you wanted to watch a film before the video was released, you went to Blockbuster.
Now, these same tech firms are worth trillions – because they created entirely new markets and new revenue streams. They carry substantial growth premia: Facebook consumed its rivals while its targeted advertising becomes more sophisticated allowing it to rake in money. Apple has become the most valuable company on the planet – by creating an ecosystem of IOS addicts to buy its constantly upgraded models that haven’t innovated anything fundamentally new in 10 years. Amazon is indispensable as the place stuff comes from. Google is successfully monetising every aspect of our lives. And Netflix…Netflix is an outlier. It’s great. My family couldn’t live without it – anything is better than watching the BBC news. Although Netflix invented the concept of a streaming service, it’s now just one among many. When Disney launched its streaming service in 2019, it was able to attract more subscribers faster – because streaming demands great content. If you want great content, Disney has it in spades. Netflix invented streaming, but Disney will dominate.
Generally, the success of companies that innovate new markets underlies their initial success. It also causes hype – when every investor thinks every new exciting tech launch is going to replicate the success of Amazon or Apple, it’s wise to remember tulip markets and step back and consider. This year’s big story has been ZOOM – worth billions because everyone on the planet suddenly learnt it exists and started using videoconferencing.
Or how about the blowout record-making IPO success of Snowflake – the cloud-computing solutions provider? Snowflake competes in a very crowded market. Its rivals have been making very healthy billion-dollar profits for a number of years. One firm, 40-year old Teradata, makes $2 bn revenues from its cloud activities and is valued at $2.5 bn. But brand-new Snowflake makes $250 million revenues, runs at a loss and is worth $80 billion – despite doing essentially the same thing as profitable Teradata. But Snowflake is new – and investors seem to be believing the old market lie: “this one is different”.
Tesla is a bubble. But it's one that, thus far, hasn’t popped.
Nothing illustrates the hopes and expectations that drive tech stocks as well as Tesla. It’s a fascinating company. It has created an entirely new market in electric vehicles, and it also dominates the battery tech. It is successfully making and selling cars and setting the market’s agenda.
There are two different views on Tesla:
There is the “you don’t understand” perspective favoured by the Tesla fan-club. They have some good points. They stress Tesla is a long-term play on the future not just of cars, but everything about capacitance (batteries), personal transport and power. It’s created and taken leadership of the expanding non-ICE (Internal Combustion Engine) market. It’s got proven battery technology and it’s collected massive amounts of data that will enable to lead autonomous driving – enabling Tesla owners to run their precious cars as self-driving taxis when they aren’t using them. The Tesla fans say the traditional financial markets don’t understand what massive future value the firm has created.
The market clearly believes in Tesla. It’s worth over $400 bn dollars despite making less than $1 bn profit in the last 12 months (the first time it’s ever posted an annual profit). While most car companies trade on modest single-digit multiples, the market clearly believes in Tesla’s exceptionalism at a plus 400 multiple.
Even though it produces less than 0.5% of global auto sales, Tesla is worth 2.5 times as much as Toyota which builds over 10% of the world’s cars, each year posting healthy profits of $23 bn on 10 times multiple. The big three US auto companies make 18 million cars per annum and post profits most years.
The unbelievers say Tesla’s minuscule profits after 10 years of developing their car model means it’s just a small niche player. They say it’s too reliant on selling carbon-regulatory certificates – every car it sells is sold at a loss. Ferrari makes 23% margin on each car while Tesla loses money. Naysayers don’t believe the hype around batteries – pointing our newer, cleaner battery tech, which can charge in seconds, will make every Tesla obsolete overnight; sometime in the future. They say Tesla’s batteries, actually made by Panasonic, won’t set the industry standard. The Chinese are saying they already have million-mile batteries, and although Tesla got a Chinese factory up and running in record time, the Chinese are outselling it.
Even sceptical financial analysts accept that Tesla makes good cars, but they believe that it needs to massively increase its margin per car and increase production at least 10 times to justify a stock price even half of its current value. In short - Tesla is a bubble. But it's one that, thus far, hasn’t popped.
But it will.
What’s driven Tesla to such stratospheric values is a result of some extraordinary factors. Founder Elon Musk is regarded by fans as a far-sighted prophet of genius. To detractors, he’s an arrogant market manipulator, hypester and snake-oil purveyor. Musk attracts the hopes and dreams of retail investors who are jumping on board the Tesla party bus. Good luck to them.
The main issue Tesla fans are missing is the same thing that is going to test Netflix and a host of other overpriced tech stocks: Competition.
Every other automaker gets what Tesla is doing. So far no one is doing it better. Someday, very soon, someone is going to launch something better. It might not be anything like Tesla, or it might just be much, much less hyped.
Nigel Green, Founder and CEO of deVere Group, has warned that coronavirus, paired with the heightening geopolitical and trade tensions, could drive the world to the brink of a global recession this year. He said: “Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus. This, despite major multinational organisations already lowering their profit guidances, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.
“However, it does seem that the world is waking up to the reality of the situation as the containment of coronavirus hasn’t yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs”, Mr Green notes.
Investors around the world must take action if they want to safeguard their wealth in the current volatile environment and they must take precaution about the stocks they want to put their money in as the coronavirus outbreak is disrupting the supply chains of many companies.
Here is Finance Monthly’s list of the top 5 stocks that are likely to weather the storm, which will hopefully help you with handling your portfolio in light of the coronavirus news.
You can find McDonald’s signature golden arches in over 100 countries across five continents. It is one of the biggest and most recognisable fast-food chains in the world. Thanks to its unique franchising structure and low prices, McDonald’s is one of these companies that will thrive in any economic condition.
With over four decades of consecutive annual dividend increases, McDonald's is a Dividend Aristocrat - it has issued dividends every year since 1976. In the last few years, it has repurchased the shares at a meaningful rate which has boosted the earnings per share and has supported the stock price.
Although the fast-food chain had to temporarily shut over 300 restaurants in China in January (which is only about 1% of its China stores), due to fears about the coronavirus outbreak, China accounts for only 2% of McDonald’s earnings. McDonald’s stock has doubled since 2015 and has shown no signs of slowing down, even with the coronavirus out there.
Facebook is one of the best and most safe stocks to buy on coronavirus fears. Although shares have taken a hit, investors should remain focused on the long term, valuing stocks based on fundamentals.
Facebook is one of the few companies that have no exposure in China, where the outbreak is the worst, as the social media platform is blocked there. On top of this, there are no signs that minimal outbreak in other countries has resulted in weaker digital ad spending, however, investors should keep an eye out for any commentary from Facebook’s management on whether or not the virus is having a material impact on the social network.
When taking the current low-interest-rate environment, it is also worth noting that Facebook is a growth stock, and growth stocks tend to perform very well in low-interest-rate environments.
The stock was also cheap before the coronavirus selloff, so all in all, FB stock could provide investors with a high-quality, big-growth company with minimal coronavirus exposure.
According to Jeremy Bowman: “Facebook is also highly profitable and sitting on $54 billion in cash and equivalents, giving the company plenty of resilience against an extended disruption. The stock is trading at a P/E ratio of 21 based on adjusted earnings and backing out its cash sum. Considering its growth rate, the stock already looks like a bargain. If shares keep falling, it will be a downright steal.”
Johnson & Johnson
Currently in its tenth year of economic expansion, Johnson & Johnson’s stock has a reputation as a safe haven. Despite a slight dip in the stock however, it seems like its future will be bright.
Professor Kass from the University of Maryland is bullish on healthcare stocks due to the amount of money that people are expected to spend on healthcare in the upcoming months, thanks to the coronavirus outbreak.
Kass commented: “… several stocks that are currently under the radar for this possible epidemic should do very well as healthcare spending in the years ahead is likely to increase substantially”.
The rationale behind this is super straightforward – Johnson & Johnson sells a wide range of everyday healthcare products to millions of people across the globe. Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc. At the time of writing this, pharmacies and drug stores in the UK have run out of hand sanitisers due to popular demand. Johnson & Johnson is therefore expected to “continue experiencing rapid growth in revenues and earnings in the foreseeable future,” says Professor Kass.
Thus if anything, the virus’ outbreak could create a long-term positive effect on the Johnson & Johnson stock.
Thanks to the coronavirus outbreak, global technology giant Apple has been hit hard from multiple angles, with having to temporarily close all corporate offices, stores and contact centres in Mainland China, and suppliers being ordered to reduce or halt production. This was all followed by a 5% drop in Apple’s stock on 31st January, however, Apple will be perfectly fine and remains a stock worth investing in. Yahoo Finance believes that the App Store will get a big boost during the outbreak due to the hundreds of millions of Chinese consumers being stuck at home right now, who will be looking for ways to entertain themselves. Additionally, February doesn’t tend to be a big month for iPhone sales as it is. The company relies heavily on its new iPhone launch in September and by then, coronavirus will be in the past (hopefully).
Apple’s stock remains loved by most investors and will undoubtedly weather the coronavirus storm. Once that’s over, with the release of its 5G iPhone, the tech giant is expected to see huge growth in the last few months of the year.
More and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.
Despite the tumble in the broader market averages, Netflix stock, along with other home entertainment stocks have been less affected. Netflix stock has made somewhat of a comeback after a solid run in 2018 – it has seen an increase in stock value of some 40% since September. On the stock market  on Thursday 27th February, the video streaming provider fell 2% to 371.71 after spending most of the session in positive territory.
Raymond James analyst Justin Patterson commented: "We believe Netflix is in a unique position to benefit from 1) a solid content lineup; 2) normalisation of competitive landscape; 3) increased consumer time spent indoors". It makes perfect senses - more and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.
Below Peter van der Putten, assistant professor at Leiden University and global director AI at Pegasystems, explains why these claims were especially painful for Apple as it brands Apple Card as a product that represents “All the things that Apple stands for”. Like simplicity, transparency and privacy”.
It all started with a recent tweet by David Heinemeier Hansson, claiming his Apple Card credit limit is 20 times higher than his wife’s. Things got even worse for Apple when Steve Wozniak, co-founder of Apple, also tweeted he can borrow 10 times more than his partner. Both state that all other circumstances are the same, for example the couples share bank and credit card accounts and are filing joint tax returns. Goldman Sachs subsequently issued a statement that neither gender or marital status is known to the bank in the application process and that customers that have lower limits than expected should get in touch with the bank. This triggered presidential candidate Elizabeth Warren to criticise the bank for putting the burden too much on the consumer.
Machine bias is a serious matter, but how would we know whether Apple Card credit policies are truly gender biased? How can bias creep into these models? And with more and more banks and financial organisations harnessing the power of AI for a variety of tasks, how can these businesses ensure that bias in artificial intelligence is kept to a minimum in the future?
First and foremost, it needs to be realised that from a pure capitalist perspective the bank would get no commercial benefits out of ‘being sexist’. By not giving credit to customers who can actually afford it the bank is missing out on potential profit.
Also, AI is not some magic potion, with secret evil intentions. AI algorithms are not perfect nor objective, a better description would be to call them blind. AI is as biased as the data used to create it. To make things worse, even if its designers have the best intentions, errors may creep in through the selection of biased data for machine learning models as well as through prejudice and assumptions in built-in logic. Therefore, financial organisations need to make sure that the data and rules being used to create their algorithms is absent of bias as much as possible. Also, one should realise that human decisions can also be subjective and flawed, so we should approach these with scrutiny as well.
Given the recent statements from the bank and also considering the rigorous regulatory environment it operates in, it is highly unlikely that the Apple Card policies are explicitly built to take gender into account, as credit policies are typically subject to strict external regulations and internal model approval. That said, it is not simply enough to remove gender from a bank’s prediction models and rules, as other more innocent looking pieces of data such as disposable income might be correlated with ‘protected’ variables like gender and age. The goal is not to remove all correlation, but customers with the same characteristics and different genders should be offered a similar credit limit. Also, it will not be possible to eradicate bias for every single customer, the bias will need to be assessed on the full base of customers to see whether it is within bounds.
In the Apple scenario, the claimants’ statement that ‘all other data was equal’ between partners may very well not hold when looking at the data and decision in detail. There may be material differences that have been overlooked by the Hansson and Wozniak, such as credit history. Also, by definition the bank may only have a partial picture of the customer characteristics and context. For example, Apple’s values of simplicity and privacy means that the information at application time is limited. In other words, this is fundamentally a data problem.
The point is, how would you know as a customer what’s driving an automated decision like this. That’s why regulators are introducing the ‘right to an explanation’, and we can expect customers to exercise this right more and more.
With these negative reports in the media about how AI might be being used incorrectly, that presents a challenge for businesses in how they can prove to their customers that they are using it right.
With these negative reports in the media about how AI might be being used incorrectly, that presents a challenge for businesses in how they can prove to their customers that they are using it right. Interestingly, a recent Pega survey into consumer attitudes to artificial intelligence found that 28% aren’t comfortable with its use by businesses. Stories, such as this one about the Apple card, will only help to perpetuate this opinion.
To combat these beliefs, financial organisations must be absolutely transparent with their use of algorithms and AI. The key is for banks to balance transparency with accuracy. The more ‘material’ the AI’s outcome, for example these credit limit decisions, the greater need for transparency and control.
Having a human approach to AI makes sure that the technology is used responsibly and with the customers’ best interests fully in mind. This will allow decisions to be made by the technology within the context of customer engagement that would be seen as empathetic if made by a person. If an organisation can successfully cultivate a culture of empathy within a business, AI can also be used as a powerful tool to help differentiate companies from their competition.
Wall Street Journal reports that according to a source familiar with the company’s plans Google plans on adding checking accounts to its consumer offerings, essentially allowing people to bank with Google, as opposed to their traditional high street bank.
Very little information has been confirmed so far but we do know that Citigroup and the Stanford Federal Credit Union are set to run the accounts under the Google banner, but branded as the financial institutions’ names, rather than the proprietor, Google.
According to several reports, Caesar Sengupta, an executive at Google told WSJ Google does not intend to sell any customer data on the back of its advance into the consumer banking landscape. “If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us,” Sengupta said.
Google is of course not the first Silicon valley giant to dip its toes in the banking game, as we saw Apple reveal plans for the Apple card this year. It has however already faced several issues in getting this project off the ground, from its relationship with Goldman Sachs, who runs the card, to scandals of sexism in its algorithms as of late. Facebook also delved into the financial landscape with its payments operation and the introduction of Libra, which has already lost the majority of its support over regulatory concerns and uncertainty in the crypto sphere.
If Google plans on stepping into the banking landscape and challenging the current status quo, which in turn is already disrupted by challenger banks and fintech start-ups, it will have to move quickly and without any hiccups. Perhaps we could see a Google bank or Bank of Google in the near future. Keep your eyes peeled.
Complaints have made the headlines insinuating Apple Card’s credit limits may have been different for men and women, making their overall offering inherently sexist.
New York's Department of Financial Services (DFS) has been in touch with Goldman Sachs, which operates Apple’s credit cards, stating that any discrimination, intentional or not, "violates New York law."
Even Apple's co-founder Steve Wozniak said in a tweet that the algorithms used to arrange customer credit limits may be inherently biased against women, and last week Bloomberg reported that tech entrepreneur David Heinemeier Hansson issued complaints that the Apple Card allowed him 20 times the credit limit that it allowed his wife, despite her having a better credit score.
The same thing happened to us. We have no separate bank accounts or credit cards or assets of any kind. We both have the same high limits on our cards, including our AmEx Centurion card. But 10x on the Apple Card.
— Steve Wozniak (@stevewoz) November 10, 2019
Mr Hansson recently tweeted: "Apple Card is a sexist program. It does not matter what the intent of individual Apple reps are, it matters what THE ALGORITHM they've placed their complete faith in does. And what it does is discriminate."
The DFS issued a statement to assure it would be "conducting an investigation to determine whether New York law was violated and ensure all consumers are treated equally regardless of sex."
"Any algorithm that intentionally or not results in discriminatory treatment of women or any other protected class violates New York law."
Goldman Sachs also told Bloomberg: "Our credit decisions are based on a customer's creditworthiness and not on factors like gender, race, age, sexual orientation or any other basis prohibited by law."
If it was possible to rewind back to 1999, we’d all invest in Apple stock instead of that VHS Recorder. In a new study by SmallBusinessPrices.co.uk, we analyse the priciest stocks of 2019 and what you could have bought with $100 over the decade.
Amazon is the most expensive stock, with the average stock price calculating to a whopping $1,752 - meaning $100 couldn’t buy you any stock, whilst in the year 2000 you’d be able to afford just two.
As one of the top e-commerce platforms in the world, Amazon gets more than 197 million visitors each month, and in 2018 the company’s share of the US e-commerce market hit 49%.
Based on the average stock price of Apple in 2000, $100 could have bought you around 35 stocks, whilst this same value wouldn’t buy a single stock based on 2019’s average stock price.
Steve Job’s innovative and visionary approach led to Apple becoming one of the biggest tech giants in the world. The launch of the iPod revolutionised the portable media player market, eventually launching iTunes which essentially changed the world’s understanding of digital media and the music industry.
Microsoft top the leaderboard this 2019, with the company’s net worth being valued at $1 trillion - one of the only three companies to pass this figure, with Apple and Amazon being the other two in recent years.
Amazon takes second place for net worth, being worth around $928.5 billion, whilst Apple follows behind on $892.1 billion.
Despite Apple taking third place for net worth, the brand still remains champion for yearly revenue. In 2018, the giant made over $265.6 million - higher than both Amazon and Microsoft who made $232.9 and $110.4 million respectively.
A unicorn business is a startup with a valuation of $1 billion, they are privately held and rely on venture capital. The name ‘unicorn’ comes from the rarity of businesses gaining such success.
Despite unicorn companies being private and not being publicly traded, if you’re hot on investment and want to keep an eye on which sectors seem to tip the edge, we’ve taken a look at the sectors which are most likely to become unicorns.
With over 360 companies being valued at $1 billion this year, the e-commerce sector took the lead, with 42 companies being declared as unicorns. This was closely followed by Fintech, which saw 39 companies join the leaderboard, whilst Internet Software & Services took third place with 32 companies.
Ian Wright from SmallBusinessPrices.co.uk stated: “Unfortunately we can’t go back in time and invest that $100 we spent on junk, in Apple or Amazon! However, this research reveals just how quickly some of these brands have grown in the last few years, and how privately held start-up companies are also experiencing huge valuations from investors taking big risks to be successful.”
To see how much $100 could have bought you in the 2000s, or find out more about unicorn start-ups in more detail, you can take a look at SmallBusinessPrices.co.uk’s tool here.
But, really, this is about a tech company moving into banking by launching a credit card. The card, albeit revolutionary for Apple’s product line, is fairly similar to products offered by challenger banks such as Monzo and Starling Bank. The new credit card allows users to pay for products through an extension of Apple Pay; only rather than Apple Pay acting as a vehicle for other payment cards and services, it will allow users to use the Apple credit card.
Although this may seem like an easy sell for Apple, as the credit card is a simple add-on for existing iPhone users, the success of the new service will be based on the company’s ability to convince consumers to switch current accounts.
Even for the likes of Apple, with its huge resources and strong established brand, this will be a difficult and challenging task. The Competition and Markets Authority (CMA) in February found that only 3% of people switch bank accounts in any one year and in the US the Retail Banking Satisfaction Study found that 4% of consumers switched primary banks in 2018.
Although this may seem like an easy sell for Apple, as the credit card is a simple add-on for existing iPhone users, the success of the new service will be based on the company’s ability to convince consumers to switch current accounts.
Despite consumers feeling reluctant to switch current accounts, Apple has cause to believe that it can defy the odds. The company has repeatedly beat competitors in established markets from computers with the launch of the Macintosh in 1984, to the mobile market with the launch of the iPhone in 2007. Plus it has a strong well-loved brand (the company is the most beloved brand in the world according to Forbes) and a network of iPhones around the world to support and promote the new service.
However, relying on the brand alone won’t be enough to convince consumers to use the Apple Card. Unlike a new computer or phone, consumers aren’t willing to experiment on who they bank with. In fact, according to a 2016 report from the CMA, customers don’t switch current account unless they have a problem with their bank, with most thinking that they have little to gain financially by moving.
Apple needs to develop a strong and effective marketing strategy in order to convince consumers to use the Apple Card, otherwise, the tech giant will find that consumers are unwilling to make the leap into using the new Apple Card over the likes of Monzo, Barclays and other banking services.
According to a 2016 report from the CMA, customers don’t switch current account unless they have a problem with their bank, with most thinking that they have little to gain financially by moving.
However, what would this marketing strategy look like? Firstly, Apple needs to target its ads to existing Apple users. Fans of the Apple brand are more likely to buy a range of Apple products from the iPhone to the iPad and therefore may be more willing to use the Apple Card. In fact, Apple’s customer loyalty is so strong that a survey found that 92% of current iPhone owners are "somewhat or extremely likely" to purchase a new iPhone as an upgrade over the next 12 months. This is compared to Samsung on 77%, 59% for LG, 56% for Motorola, and 42% for Nokia.
Apple can target these existing fans in a multitude of ways. Through search engines, Apple can target fans by leveraging keywords such as “Apple” and “iPhone”, while on social platforms like Facebook and Twitter it can target users based on likes and searches related to the tech giant. When reaching people out of home, the company can use physical billboards located near Apple stores to target users as they are actively seeking out new Apple products.
Apple also needs to position itself alongside the same lines as challenger banks such as Monzo, Starling Bank and Revolut. These newly created banks have grown rapidly with younger consumers over the last few years, despite the fact that consumers are reluctant to switch their current accounts. Take Monzo, the digital bank hit 300,000 customer mark earlier this year due to the fact that it positions itself as cool and innovative in its marketing messaging. It also positions itself as a supplementary account with Monzo CEO Tom Blomfield telling Reuters that only 30% of its users are using the app as their main bank account.
Without considering the messaging and advertising channels for the Apple Card, the tech giant will find that it no longer has the fabled Apple mystique. While the company has long been able to enter new markets and disrupt sectors, the launch of the Apple Card presents the tech giant with a different and more regulated sector. It is therefore clear that Apple needs to create and deliver a marketing strategy that targets people who use Apple products and that addresses concerns around switching banks.
Here Finance Monthly hears from Hannah Conway, Consultant at Brandpie, on exactly why shifts in consumer trust are what drive and alter the financial landscape.
The financial crisis of 2008 had far-reaching consequences, some of which can still be felt. Public trust in traditional banking institutions has eroded and brands in the sector are dealing with the reputational damages endured. One needn’t look further than Chase Bank capitalising on the trend of being relatable on social media only to face public wrath for bailouts that occurred ten years earlier.
Consumers have clearly not forgotten the crisis. In fact, the 2018 Edelman Trust Barometer ranked financial services as the least trusted industry worldwide. In the same report, technology ranked as the most trusted. Silicon Valley flourished in the decade following the financial crisis, with organisations small and large introducing technologies that would come to revolutionise consumer finance.
In this landscape, tech conglomerates, have been able to make serious in-roads into different aspects of consumer finance, a process that shows no signs of waning.
Amazon was among the trailblazers innovating in this space, introducing one-click ordering as early as 2000. With an ecosystem boasting 310 million active customer accounts, over 100 million Prime subscribers and over 5 million sellers across 12 marketplaces, Amazon is no rookie. The retail giant is building an array of financial services to increase further participation in the Amazon ecosystem, ranging from payments infrastructure to Amazon Pay – which already has 33 million customers worldwide.
Amazon Cash, which launched in 2017, enables customers to deposit cash to their Amazon.com balance by showing a barcode at participating retailers. The cash is applied to their Amazon account immediately, giving “cash customers”, such as anyone who doesn’t have a bank account or debit and credit cards, the ability to shop on the e-tail giant.
The technological advancements in voice will ultimately enable Amazon to make further encroachments into consumer finance. Virtual assistant Alexa is set to dominate voice shopping, currently having the largest market share of smart speakers, more than twice that of its competitors, Google and Microsoft. Purchases processed through voice are expected to skyrocket to $40 billion by 2022. As consumers were already using the platform, the introduction of new customer-friendly payment experiences serve to further boost Amazon’s position.
The technological advancements in voice will ultimately enable Amazon to make further encroachments into consumer finance. Virtual assistant Alexa is set to dominate voice shopping, currently having the largest market share of smart speakers, more than twice that of its competitors, Google and Microsoft.
Apple has similarly made great strides in the space. ApplePay is already available in 33 countries, with over 250 million users worldwide.
CEO Tim Cook recently announced Apple Card, a new credit card, which is expected to be released in the US this summer before potentially being rolled out globally. Purchases from Apple’s physical stores, website, App Store or iTunes will come with a 3% cash back, with all other purchases at 1%, all in the form of Daily Cash, which will then be added in Apple’s Wallet app.
Apple is building an ecosystem which will see consumers use Apple products to pay, with the cash back options leading to more purchasing. In addition to the seamless customer experience across its portfolio, the giant is pushing privacy as its main differentiator, with its latest “Privacy Matters” commercial prime example. Apple wants to assure customers that all their private information on their phone is safe, with its new credit card offering similarly touting security and ease of use.
Facebook introduced peer-to-peer payment in its messenger app back in 2015, but it is the company’s subsidiary Instagram that is making significant in-roads to consumer finance.
Facebook usage might be steadily dwindling, but Instagram is on the rise. As Instagram is a highly visual medium and users have the feed to interact with their favourite brands, it was a logical next step that the network would introduce purchasing and payment mechanisms sooner rather than later. This became a reality earlier in the year with Instagram enabling in-app checkout for its shoppable posts. In April 2019, the offering was extended from brands to influencers, significantly boosting Instagram’s reach. Deutsche Bank analysts have already predicted Instagram’s move into social shopping could be worth $10 billion by as soon as 2021.
But while the West is fast encroaching this space, no one has managed to catch up to WeChat’s fast ascension into the sphere of digital payments. With over 1 billion active users, and thanks to its own in-app shopping and payment system, the Chinese social media network is a force to be reckoned with. It provides a seamless mobile lifestyle through which consumers can order food, send and receive money, pay utility bills, shop and more.
With over 1 billion active users, and thanks to its own in-app shopping and payment system, the Chinese social media network (WeChat) is a force to be reckoned with. It provides a seamless mobile lifestyle through which consumers can order food, send and receive money, pay utility bills, shop and more.
Social payments are the norm. Consumers can buy a friend a cup of coffee and send it through WeChat Pay. Busking musicians no longer expect coins or notes, they have signs with their WeChat Pay QR codes on them. WeChat Pay leads the way with over 600 million users, outranking most of its competitors. Tencent, the company that owns WeChat recently joined forces with JD.com, China’s leading e-commerce platform to cover both online and offline markets.
Thanks to the innovative way they use technology to communicate integrity, security and trust, as well as creating a better customer experience, tech organisations have seen younger generations and seasoned consumers alike gravitate towards digital-first offerings.
But while challengers were ahead of the curve in evaluating how consumers want to interact with banks, traditional players need not despair. From designing apps that introduce a more mobile-first offering to embracing cutting-edge tech, such as AI and IoT, to enable predictive and hyper-personalised interactions, there is plenty traditional banks can do to create captivating customer journeys to meet customers’ ever-evolving expectations.