Merchant Payment Processing Solutions From Credit Card Industry: Fill & Download for Free

This is a prime example of technology leapfrogging and we are witnessing it play out in real-time.In the U.S. — and much of the developed world — payment transaction networks are dominated by Visa and Mastercard (along with a few smaller players such as American Express and Discover). This is a classic network-effect driven duopoly/oligopoly business because once you have established yourself with merchants (e.g. payment terminals, back-end systems) and put your cards in the wallets of consumers and business users, it is virtually impossible for a new player to compete directly.The traditional payment transaction networks do a perfectly fine job processing payments. Even though these systems rely on code that was written decades ago, the networks can still reliably process upwards of tens of thousands of transactions per second [1]. Credit and debit cards proliferated in the 80s and 90s and eventually became the dominant form of electronic payment in the U.S. and rich countries around the world, and generally made people’s lives more convenient and efficient.As you might imagine, it also became a very lucrative business with Visa and Mastercard clipping 1 to 2% of an ever-increasing volume of credit card transactions. They worked with banks and other credit card issuers to drive usage by consumers through points and loyalty programs. Revenue and operating profits rose steadily and after going public, both Visa and Mastercard have seen their stock prices rise to all-time highs.While the idea was novel and clever, the technology behind a modern payments platform like Alipay or Wechat Payments is not at all revolutionary. Being able to process a QR code, debit/credit ledger balances, link to your bank account, verify identity, securely process transactions etc. is not difficult. Doing it at scale is a bit more tricky but because they are not saddled with legacy code, modern payment platforms such as Alipay are able to process transactions at an order of magnitude or two — measured in the hundreds of thousands to millions of transactions per second [2] — above traditional payment networks.I have no doubt that incumbents like Visa and Mastercard or potential new entrants like Paypal, Apple, Amazon or heck even a random team of competent software engineers can build out a similar solution, especially if they start from scratch. So why hasn’t this happened yet?(1) Incumbents: “If it ain't broke …”This chart illustrates the conundrum facing traditional payment network incumbents like Visa and Mastercard.Today, they earn somewhere between 1 to 2% of each credit card transaction that is processed on their network — the chart above shows an average merchant discount of over 2%, but this fee needs to be shared with the card issuer and other players in the eco-system.For debit card transactions processed across the same transaction network, the overall discount is significantly less than 1% — this is because debit card fees are regulated [3].But unregulated credit card fees are much more profitable for Visa and Mastercard even if they have to share a large chunk of the fee with credit card issuers and others in the eco-system. This is the reason why points and loyalty programs have become so prevalent for credit cards but not debit cards — it is all done to push the user to opt for credit cards when paying for anything.From a user perspective, the price and experience is more or less the same, so of course they are going to choose to pay with a credit card that earns points or “cash back” vs. a debit card that does not. The higher transaction fee is borne by the merchant which just ends up passing the cost back to consumers indirectly by raising prices. I will readily admit that despite knowing all of this I cannot remember the last time I used my debit card to pay for anything except that one time I mistakenly swiped the wrong card. Virtually all of my spending goes to the the credit card with the best rewards program — it makes the most financial sense for me and that's exactly what the credit card companies intended when they designed the system.As evidenced in the stock charts above, this business model has been extremely lucrative for the transaction network companies and many others in the credit card eco-system.Moving to a next-generation mobile payments platform that looks like Alipay is risky because it is not clear what the economic model looks like. In fact, it looks quite likely that the new economic model would be far less profitable — particularly in the near-term. For example, under a new system does that mean merchant fees will be regulated and lower?Why risk cannibalizing a highly profitable revenue stream? Why mess with a formula that is already working extremely well?Bottom line is that I wouldn't hold my breath waiting for the incumbents to lead the charge to disrupt their existing business models.(2) New entrants: The chicken & egg problemSo it makes sense that incumbents are reluctant to move the industry to a better platform, but what about new entrants? Indeed, some of the strongest companies out there are attacking this problem — from technology giants Apple and Amazon to retailers like Walmart and Starbucks. But even they are having a really tough time making more than a small dent in the market.First, despite impressive growth figures, transaction volume processed across these “next-generation” solutions is still very low. Recent estimates are that mobile payments make up less than 1% of total transactions [4].Second, I put “next-generation” in quotes because these solutions are generally built on top of traditional transaction networks dominated by Visa and Mastercard. In other words, they are merely mobile front ends or digital versions of the plastic credit cards that we have always used. They are still processed through legacy credit card terminals and society still ends up indirectly paying the high credit card fees to the same small group of industry participants. Even retailer wallets like Starbucks and Walmart are usually funded by credit card payments — because users are incentivized to do so by the loyalty and rewards programs.It is just really difficult for a new entrant to break into the market in a truly disruptive manner because it is the classic chicken-and-egg problem. Merchants need to invest real dollars and hassle into deploying new point-of-sale terminals that can accommodate new methods of payment. But it does not make economic sense to do so if <1% of consumers pay with these new methods. Meanwhile, consumers are not going to use a new payments method if most merchants don’t accept it. The existing system is “good enough” and there are also built-in incentives in place (loyalty programs) to continue the status quo.If giants like Apple and Amazon are only able to make very small headway into the overall payments landscape (and even then, they still need to work and share fees with traditional networks), how can others that are not as well-capitalized ever hope to be successful?Why things happened differently in ChinaAs I described in detail in another answer (Why aren’t credit cards popular in China, the world's second largest economy?), Alipay did not face the same constraints that new entrants in the U.S. and other economies where credit card penetration and usage was already high and well-established. Once smartphones became ubiquitous in cities, Alipay rapidly expanded across the country, ultimately enabling the Chinese economy to skip the credit card stage and move straight to a superior technology that was built from the ground up for a modern digital-centric and mobile economy.Interestingly, the proximate, near-term implications of the move are not all that revolutionary. The leap from paying with your phone vs. a credit card is much smaller than the leap from paying with cash. As mentioned above, this is one reason why U.S. consumers aren’t as vociferous in demanding a mobile solution — credit cards are “good enough” for most.But the second and third-order effects of adopting a next-generation mobile payments solution may have much greater implications in the long run:First, because the merchant fee is much lower for mobile payments in China than credit card payments in the U.S. this reduces the friction costs of commerce. Instead of paying 3% fees, merchants pay less than 1% and can re-invest that 2% savings back into the business or pass on the savings to the consumer. Lower friction costs are one key reason why mobile payments in China alone are set to overtake global credit card transaction volume as early as this year [notes 5 and 6].Second, next-generation mobile payments is a true “platform technology” that can enable new business models. In another answer (What does the bike-sharing mania say about the Chinese economy?) I wrote about how mobile micro-payments was a key factor in enabling the dockless bike-sharing phenomenon.Third, China’s next-generation mobile solution is much more likely to be the platform of choice for developing countries that — like China five years ago — are primarily cash-based economies where credit card usage is not yet prevalent. Indeed, Alibaba and Tencent are leading the charge in Southeast Asia today and investing heavily in payments companies as well as related Internet and e-commerce companies.Fourth, besides enabling new business models, true next-generation payment platforms also generate a deluge of valuable transaction data for Alibaba and Tencent — data that is significantly more granular and attributable than data that can be collected by traditional transaction networks or credit card issuers. Alibaba and Tencent are fine with the relatively low regulated merchant fee rates because what they are really after is the holy grail of data.When technology leapfrogging occurs, it is rarely the result of an incumbent’s inability to develop new technologies. As Clay Christensen described in his book The Innovator's Dilemma, it is almost always organizational factors that create significant obstacles to the adoption of new, disruptive technologies.In the case of the payments industry, there is a huge profit motive by players across the credit card eco-system to maintain the status quo. These companies are public companies, run by executives and overseen by boards who have a fiduciary duty to shareholders and are typically heavily incentivized to maximize the market value of the corporation. Having sat on several public and private company boards in the past, I fully understand and appreciate why it is so hard for them to embark on a path that may violently disrupt their own business model — especially one that is very successful — and why they tend to be suspicious of new entrants. These are extraordinarily rational decisions (or non-decisions) for companies like Visa and Mastercard to make.But China circa 2013 was not hampered by the same constraints, and new entrants like Alibaba and Tencent were able to break through and completely change the paradigm. It is still early but it appears that they have built an insurmountable lead in China — one that is unlikely to be broken by any new entrant foreign or domestic — and are starting to build significant leads in places like Southeast Asia. And this is just the beginning if you buy into the idea that mobile payments is a true platform technology.Ironically, in this new world, Alibaba and Tencent are quickly emerging as the new dominant incumbents. And in the future, it will be very interesting to see whether or not they act any differently in the face of potential future disruption.Related reading:Why aren’t credit cards popular in China, the world's second largest economy?Can Alipay succeed with Westerners?How does Alipay compare with Paypal?How do you use Alipay?What does the bike-sharing mania say about the Chinese economy?Notes:[1] Source: Visa — 65,000 Transaction messages per second — peak capacity as of August 2016[2] Source: Alibaba — “Alipay processed 256,000 payment transactions per second at peak within the first hour” Theoretical peak transaction volume should be significantly higher than this — really just a matter of adding more computing resources on Alibaba Cloud.[3] Source: Durbin Amendment[4] Source: CNET — “Today, mobile payments still make up less than 1 percent of overall in-store US transaction volume,” says Jordan McKee, principal payments analyst at 451 Research. “Our research also shows that likelihood of using digital wallets has plateaued since the launch of Apple Pay.”[5] Source: Mary Meeker 2017 Internet Trends Report — China mobile payments volume was >$5 trillion in 2016 and still growing by over 60% a year. 2017 transaction volume is likely to be north of $8 trillion and grow to >$12 trillion in 2018.[6] Source: The Nilson Report — “Global card purchase volume grew 5.8 percent to $20.606 trillion in 2016, according The Nilson Report.” — This $20 trillion figure includes a significant contribution from China UnionPay and debit card payments.

What is Apple Card, the new credit card from Apple and why is it important?Not only is it a revolution in Apple design, it may just become a new central income stream for Apple services.Specimen of the Apple Card promotion from Apple.Apple Card: A Sublimely Simple Yet Profoundly Powerful New Apple Services Income StreamToday, March 25th, 2019 Apple announced a revolution in how payment cards [0] will work in the future. More than just a co-branded credit card, this is a well thought out deeply engineered new Apple product.Specimen, Tim Cook introducing Apple Card.My Personal Payment JourneyI have been in the payments industry, both merchant processing and card issuing since the 1980s. My interest in this sector was sparked by a lack of new technology being applied and a fascination with the history of money all the back to Sumerian Ring Coin. Back in 2008, I began to speak publicly about Apple becoming deeply involved in payments. It would be a great understatement to say just about everyone in the payments world and in the tech world found my assertions to be ludicrous. By 2012 on Quora [1] I tried to alert startups and legacy payment companies that it is futile and redundant to build many alternative payment systems that does not account for Apple using NFC and ultimately creating Apple Pay, Apple Pay Cash, Apple Card and ultimately an Apple merchant payment processing solution that include macro-payments, micro-payments and nano-payments ultimately. Few listened in fact some got publicly hostile towards me and branded me “un-hireable” at their payment startup because I dared to predict Apple would move to the payments business. That was a bit disturbing to me, I forgive but I don’t forget.In 2012, quite a few years before the NFC based Apple Pay system was released I said [1]:“It is clear to me that Apple will move to NFC…”I went on to not only predict Apple Pay [2] but to build the largest Apple Pay map in the world that offered a reminder, push notification when you enter an Apple Pay accepting retail location [3].Specimen, the Pay Finders commercial series.I have not continued my work on Pay Finders for Apple Pay for a number of reasons. I still feel rather strongly however that push notification of Apple Pay acceptance locations are critical as well as my map which is still the largest Apple Pay map in the world.In 2014 I said [2]:“We will see Apple present new extensions (to Apple Pay) that will use far more refined and richer experiences as Apple begins to integrate the back end of retailer’s POS systems. This will include data sent to the Apple Pay user based on the transaction inside of a real and effective receipt system”I present this personal journey for those that choose to be honest in the face of celebrity startups and trillion dollar valuations, that it is better to be lucid and direct, than to drink the cool-aide and say: “wow this is a great idea folks”, I have the scars you can research here on Quora to prove it, but today it is worth it. A few days before today’s announcement I had this precognition Tweet:🔮 The new Apple Pay will begin to surface on March 25th, 2019. It will be deeply weaved into new subscription models. Ultimately there will be an astounding new use case for micro transactions with Apple Pay Cash, fundamentally changing the former advertising models for content.— Brian Roemmele (@BrianRoemmele) March 21, 2019Specimen, a Tweet.If one were to analyze all of the millions of dollars that was wasted on wallets, new fangled ways to pay, new person to person payment systems and other digressions, it would total in to the hundreds of millions of dollars, all lost for no particularly good reason then “not invented here” mentality. Today, Apple indeed has rendered many business plans and business models irrelevant and redundant for many reasons.What Makes Apple Card So Special?Unlike any payment device before, Apple Card is fully engineered to an extent that only few companies have achieved in any product and has not been seen before in the payments business. By engineered I am speaking to not only the technology behind the product but the experience you will have using the product.Apple Card completely rethinks everything about the credit card, breaks it down to the fundamental essence and rebuilds it in modern engineered Apple-like delight. It represents all the things Apple stands for:SimplicityTransparencyPrivacyApple Card builds on the ease and security of the foundation of Apple Pay.The first card that encourages you to pay less interest.You can buy with your iPhone like any Apple Pay payment card or use the Apple‑designed titanium card anywhere in the world that does not accept Apple Pay. The Apple Card lives on the iPhone, in the Wallet app. Because of this it makes all kinds of new things possible.Specimen showing Siri AI presenting your transaction information privately.When you buy something using the Apple Card, you get a percentage of your purchase back in Daily Cash deposited to your Apple Pay Cash card. Not in a month from now like every other rewards card, but every day. There’s no limit to how much you can get back. The pure brilliance is Daily Cash goes right onto your Apple Cash card, so you can use it just like cash. This is profoundly important. Why? In one product Apple actually created two products:Apple CardThe New Apple Cash Card with an income stream from Apple CardNothing has ever been done like this before. Apple in effect is creating “new money” that has no net cost to Apple. Like all reward points cards, the cost of the reward points are actually paid by the actual merchant you paid using the payment card as the merchant account rate. In most cases, retail merchants that effectively negotiate their rates, are paying about 1.8%-2.25% for many reward cards. A portion of this funds that actual Daily Cash that accrues to the Apple Card user.Apple also earns income from the part of the Interchange, a portion of the merchant fee that Goldman, the credit card issuer collects from the merchant fee mentioned above, anytime the user pays any merchant with the Apple Card. When the Apple Card is used at Apple or special partner merchants, Apple pays no true Interchange fee and thereby saves the ~2% of which is part of the amount paid back as daily cash. I spoke of this in 2014 the day Apple Pay was announced [1] and produced a rather woodsy pie chart to illustrate how a typical Apple Pay transaction, prior to the Apple Card incurred fees and revenue to Apple. In this chart we see just about all fees charged to Apple eliminateted when Apple is the card issuer, and thus the recipient of the Interchange fee and processor fee and of course the merchant payment is to Apple.Specimen, wood cut of how Apple Pay earns revenue.The reward/ loyalty points aspect is not new. The new aspect is that Apple is funding a second payment card Apple Pay Cash card with “free” “found money”. This means Apple did not incur any material costs to create the money and move the money to the Apple Card user. In effect Apple is creating a “new economy” where Apple has “money in the bank” and they will go on to earn income in two fundamental ways:When the Apple Pay Cash card user pays any merchant, Apple gains revenue on this transaction.When the Apple Pay Cash card user pays Apple, Apple does not inure any merchant payment fee because they are the merchant and the card issuer.Astounding And Surprising New Apple Service Income From Apple CardAll of this has an incredible momentum effect for new revenue streams for Apple and frankly new impulse sales because of this new “found money” the Apple Card user will see accrue on every transaction they perform.Consider a 99¢ app purchase, currently Apple incurs about 13¢ payment processing fees of the 99¢ transaction. If the user is induced, and have no doubts Apple will offer inducements, to use Apple Pay Cash Daily Cash to pay, Apple pays $0. Lets look at that again, $0 vs. about 13¢. This alone would represent millions of dollars of new revenue for Apple. Payments for Apple will move from being a loss leader to a net revenue stream.How much new revenue would this generate? It is not too early to suggest that over the arc of 10 years, about 10% of Apple pure profits can come from payments alone. I do not arrive at this prediction lightly, the compounding effect is quite powerful. To add some aspect of how I make these predictions, I have been in the payments business since 1986.Apple Daily Cash As The New eBay/PayPal “Found Money” ModelThe thing that most folks, even payments experts don’t clearly understand, even in 2019 is how eBay + PayPal became so powerful. Indeed the network effect had a great deal to do with it, but also it was the “free” “on us” money that flowed from someone selling their old stuff in their garages and basements on eBay, thereby creating “new money” that was deposited at “no cost” in a PayPal account. Understand that this way of funding is far less than the ACH system and credit/debit card funding into PayPal. What eBay/PayPal did was create “new money” from stuff that may very well have been tossed away.Specimen, of monthly accrued Daily Cash.Today Apple has created “new money” that gives them top of the wallet, first in line, use of these funds. I am predicting that about $75 of every $100 in Apple Card Daily Cash will be collected by Apple for products and services. And even is those funds are not spent at Apple, Apple will still earn income from the use of the Apple Pay Cash transaction as part of the interchange all MasterCard transactions incur.The details on Daily Cash is:Get 3% back on everything you buy from Apple, whether you buy it at an Apple Store, Apple, the App Store, or iTunes. That includes games, in‑app purchases, and services like your Apple Music subscription and iCloud storage plan.Get 2% back every time you buy something using Apple Pay. That’s in every category, with no limits. Imagine all the things you use a credit card for every day — at Target, Walgreens, Lyft. You get 2% back on just about everything.Get 1% at a store, website, or app that doesn’t take Apple Pay, Apple Card gives you 1% of your purchases back in the form of Daily Cash.The Apple Card payment is due on the last day of the month, an easy to remember, system that makes sense. You can also set up weekly or biweekly payments to match when you get paid.By paying more often, it helps you save on interest. Apple Card sends reminders when the due date is coming up, using Apple Wallet push notifications. These two aspects are fundamentally important as they will aid in accurate and timely payments quite beyond standard payment cards. About 67% of late credit card payments are from not remembering the payment was due, or out of sequence pay checks. Apple Card goes a long way to solve this issue. I predict Apple will have one of the highest on-time payment records in the industry.Apple Just Broke “Breakage”The term “breakage” is more or less defined as a way loyalty and reward points can partly or entirely removed from the person that earned it. This is a standard in the payment card industry and it usually comes as the user assumed they banked the point for a future date—only to see the vanish. This use it or lose it approach is also exacerbated by a “change” in what the loyalty or reward point can buy. This inflation and the breakage is a way to claw back tons of profit by card issuers. In one fell swoop Apple broke this model with real-time daily cash that can not be impacted by expiration, point inflation (other than currency inflation) and other breakage models. The effect will be profound when it is properly promoted by Apple.Apple Changes What We Think Is A Credit CardThis is not the first Apple Credit Card, that actually was in 1986 during the release of the Apple Macintosh SE and Apple IIe promotions. It offered a very low APR and $2500 of instant credit. It was a bit of a success for Apple.Specimen of an Apple Credit Card Promotion Circa 1986.The new Apple Card is about to change the whole premise many credit cards use to drive income, interest. You can save on interest of course by paying the balance in full every month. But when you can’t do that, Apple Card does the math for you. You choose an amount you wish to pay $536, $643, $2,324 and the automated Apple Card estimate system will calculate the interest cost for you, in real-time. The variable APRs you pay for Apple Card ranges from 13.24% to 24.24% based on creditworthiness, this is on the low medium standard in the industry. The Apple Card also offers up smart payment suggestions that encourage you to pay a little more than you normally would, and helps you pay off your balance faster with lower or no interest charged.Most credit cards have fees of course, but Apple is doing quite a bit to eliminate just about all of them:No annual fees.No cash‑advance fees.No international fees.No over‑the‑limit or returned‑payment fees.No hidden fees.No surprises.If this is not enough, if you miss a payment, there is no charge for penalty rates.Siri AI + Apple Business ChatEvery time there is a purchase you get an instant notification from Apple Wallet. You’ll also be notified of any unusual activity. If you don’t recognize a charge you just tap to let Apple know. If you have a question, you could call or you can use Apple Business Chat integrated into Apple Card. This is a brilliant combination of Siri AI technology, prompting simple questions and answering and/or guiding you to a result or seamlessly turning the chat over to a live agent.This use of Siri AI is also quite sublime in this context as 80% of questions will be easily answered or acted upon by Siri AI over Apple Business Chat. This is called “dog fooding” in the tech industry and many folks will miss just how important this aspect of Siri AI and Apple Business Chat will be moving forward as these services infuse into just about all of Apple services.I wrote just how important Apple Business Chat is to Commerce and Voice Commerce via Siri in 2017 [7]. Apple Business Chat has formed the basis of Apple live customer service for over two years while many astute observers did not notice. A vast majority of customer service responses were formed by Siri AI and no one really noticed. This same platform will form the basis of Apple Card customer service. It will also form the basis of a Voice Commerce system formed around Siri and Apple Card and Apple Pay Cash. This aspect is perhaps just as important as all of the announcements that took place today, over the arc of the next 10 years.Specimen of Apple Card private Siri AI generated statement.Everything you buy using Apple Card is in an AI produced category presented as a color. The same colors show up in your spend summaries on your online, in-wallet statements. See orange, that’s Food and Drinks. See pink, that’s Entertainment.At a glance you will see what you have spent your money on in far better detail than any accounting software to date. This is achieved through a combination of deeper merchant information achieved by being the card issuer and though unique use of Siri AI to categorize and create a taxonomy of your spending habits in a way that is useful.Specimen of Apple Card private Siri AI generated detail statement with map of merchant location.Apple Privacy vs. “You” As The ProductApple is leading also with privacy on Apple Card. They present clearly that your payment history will not be shared with any marketing partners. This is quite unique and as simple as it sounds, it will become more and more important to consumers as the end of this decade plays out.Privacy as a leading selling feature for Apple will be infused into just about everything Apple does from this point on. From the secure enclave to differential AI privacy, Apple has planted a flag in this new territory. This is in the exact opposite direction of Google and Facebook. This will be the battle of the next decade and there is no doubt that privacy will win the day.Additionally like all Apple Pay based transactions Apple Card generates a one time use virtual number every time you pay online for extra security and some privacy. This takes place even if Apple Pay Online is not used. Apple Keychains will autocomplete a new virtual Apple Card number in real-time.The Apple Card Pardox- Phsyical Card Better Than Virtual Card?The physical Apple Card is a brilliant and sublime design that many will overlook as being “just a plain card”. I will go as far as to state that the new laser engraved titanium Apple Card, with just your name will become the new “white headphone cords” of this epoch. It is genius brand signaling that will in and of itself drive use of the card. Paradoxically the simple payment card may signal this more profoundly then Apple Pay on the iPhone itself. This effect is powerful and brand signaling has been a foundation to not only the iPod, iPhone, MacBook but also AirPods. I wrote about the AirPods brand signaling the day they were announced [6]. I said:“Apple will continue the tradition of brand signaling with AirPods to a great effect. They will transmit a brand commitment and potentially a lifestyle choice that many associate with a notable brand. This may be one of the reason for the extension of the earbud with the white shaft. However this extension also accommodates the primary beam forming microphone”Specimen of an Apple Card.Specimen of the laser engraved, titanium Apple Card.This turned out to be correct in the backdrop of “these things are ugly” by even deep Apple supporters when AirPods were announce. They went on to become one of Apple’s most successful products of the last five years. The same effect will turn out to be true for the physical Apple Card. In my view it is the most beautiful payment card ever designed. Few will see this today, but they will see it in a few years in retrospect.Besides the very unique Apple-like appearance of the Apple Card, it also serves as a normal mag stripe and EMV card. There are no NFC chips on the card at this point for a number of reasons. One important reason is this would create a static permanent number on the card that would open you up to potential fraud. However there is little reason for an NFC chip since you have, nearly all the time you iPhone that creates a far better user experience.Activating the Apple Card when it arrives is the mail is slick and Apple-like. The process is similar to the pairing process of AirPods. There is a new Apple Pay wallet service that allows for simple one click paring of the Card with the iOS device and the user. A small but very slick feature.The card displays no information about the owner other then the name. Of course there is a “hidden” card number “pan” in the magnetic strip and the EMV chip. The card number and CVV + AVS is available in Apple Wallet if you want to use a static number . You can use this for non-Apple Pay purchases online or over the phone.To use the Apple card online at a non-Apple Pay merchant is similar to how Safari stores your preferred payment cards today. At first this feature will only be available on the iPhone but later it will flow to all Apple platforms. The process generates a new Credit Card number each time it is called up. This one-time use number is similar to the way Apple Pay works at retail and online.The use of the Apple ecosystem for Apple Card like Safari, Apple Wallet, Apple Pay assure that it is harder for a user to leave the Apple world with Apple Card.Soon Apple App Store Developers Will Be Paid By Apple Pay CashApple App Store developers, the ones that earned since 2008, a year when the iPhone sold a measly 10 million units of iPhone, have made a collective $120 billion in sales from the App Store, with more than a quarter of that sum coming in 2018 alone, This ultimate shift to paying developers via this payment vehicle, even if just 20% elect to get their earnings faster, perhaps weekly or even daily will make Apple Pay Cash one of the largest payment distribution systems outside of government payments for Social Secueity. It would grow the ecosystem around Apple Card and in turn produce billions of dollars in new revenue for Apple. There is no doubt we may see this developer payment option staring to be tested in 2019.A final note about this prospect of paying developers via Apple Pay Cash cards, it has the prospect of allowing Apple to lower the 30% fee they collect from each transaction—perhaps significantly. This factor can completely shift the model of the App Store and create a complex problem for some Android App stores.Apple Card Signals Apple In CryptoOf all the aspects announced today on Apple Card, it is the creation of “new money” in Apple Pay Cash cards that is perhaps the most important. This will lead to Apple ultimately being involved in crypto payment systems if not Bitcoin directly. I predict we will see this in the next few years very clearly. I also assert this “new money” will form the basis of a new Apple Merchant Payment system whereby nano-transactions (below 1¢) and micro-transactions (below $1) will become not only popular, it will remake the internet and Voice First, SiriOS world into a commerce model and away from an advertising model. We can already see this in Apple News+ and Apple TV+ announced today. Apple Pay forms a tapestry around these systems as it did with Apple Music and App Store.Apple SiriOS Voice First PlatformI feel rather strongly in the premise of a Voice First future, I call this The Last Interface [4]. In this new Voice First world advertising as we know it is—over [5]. We will not tolerate an ad inserted into our dialogues we most certainly will have in the next 10 years with any Voice First platform. Thus Apple Pay Cash will form a payment paradigm to compensate in nano and micro transactions to developers and partners offering “apps” and services. I call this SiriOS for Apple and there is no doubt that a complete OS for Siri is not an option, but a requirement.Today we saw how privacy and no-advertising was a fundamental part of Apple News+ and Apple TV+ [8]. We saw how local curation using Siri AI takes place on the device. This forms the foundation for a complete SiriOS that operates trough any content channel: Audio, Video, Text. Including:PodcastsNewsMagazinesMoviesThus we can see just how important it is to have Siri AI and Apple Pay combined into a simple platform that can be manifested as SiriOS services package accessible via any Voice First platform, Alexa, Google or Apple. The intelligence is not the content but the AI in the channel, this is the fundamental reason for a deviceless SiriOS with deep context and privacy and today we have a hint of this. I predict we will see more by the Apple World Wide Developer Conference (WWDC) in 2019.Apple Card As An Engineered ExperienceApple can do all of this in credit card because credit cards are not the central business of Apple. The central business of Apple is the Apple engineered experience. Like all things Apple, they do not need to invent new things necessarily, no, Apple just needs to reinvent the experience.Today Apple has done more than introduce a new payment card. Apple has reengineered everything we have come to know about the entire experience. From the simple elegance of the laser engraved titanium card to the brilliant use of Siri AI, Apple has once again reinvented an entire industry curated to the most important and simple elements. Apple has made a complete payment system that is worthy of the brand name. It truly is an Apple Card._______[0] Apple Card[1] https://qr.ae/TW8Mwk and Brian Roemmele's answer to How does Apple make money from Apple Pay?[2] https://qr.ae/TW8V0i[3] http://PayFinders.com[4] http://TheLastInterface.com[5] https://www.forbes.com/sites/quora/2016/12/05/voice-first-technology-is-about-to-kill-advertising-as-we-know-it/#79a8f8513788[6] https://qr.ae/TW8iUu[7] Brian Roemmele's answer to What is an Apple Business Chat? Why is it important?[8] Apple News

About SBI CardsThey are the second-largest credit card issuer in India, with an 18.0% market share of the Indian credit card market in terms of the number of credit cards outstanding as of September 30, 2019, and a 17.9% market share of the Indian credit card market in terms of total credit card spends in the six months ended September 30, 2019. (RBI Data) From March 31, 2017, to March 31, 2019, its total credit card spends grew at a 54.2% CAGR (as compared to a 35.6% CAGR for the overall credit card industry, according to the RBI) and the number of credit cards outstanding grew at a 34.5% CAGR.HistoryCommenced operations in 1998 as a joint venture between SBI and GE Capital. Received RBI approval to operate as a non-banking financial institution on October 6, 1998. GE Capital’s ownership stake in SBI Cards was acquired by SBI and CA Rover Holdings in 2017.5 Facts to knowThey deploy a sales force of 33,086 outsourced sales personnel (Sept 2019) operating out of 133 Indian cities. Out of the aforesaid outsourced sales personnel, they have 4,350 outsourced workforces for tele-sales.They engage prospective customers through multiple channels, including physical points of sale in bank branches, retail stores, malls, fuel stations, railway stations, airports, corporate parks and offices, as well as through tele-sales, online channels, email, SMS marketing and mobile applications.They are the leading player in open market customer acquisition in India according to CRISIL Report.Presence in 3,009 open market points of sale across India.Partnership with SBI provides them with access to SBI’s extensive network of 22,007 branches across India, which enables marketing credit cards to SBI’s vast customer base of 436.4 million customers as of March 31, 2019.Management TeamManaging Director and Chief Executive Officer, Mr. Hardayal Prasad, has over 36 years of experience in the financial services industry.How does SBI Cards earn money?They focus on two main financial needs: transactional needs and short term credit. The revenue derived from credit card products consists primarily of interest on credit card receivables and non-interest income primarily comprised of fee-based income such as interchange fees, late fees, annual credit card membership fees and other fees.They extend credit to cardholders through revolving credit card accounts at standard terms. Their cardholders have the option to “revolve” their balances or convert their balances into monthly installments and repay their obligations over a period of time and at a fixed interest rate set forth in their cardholder agreements. They assign each card account a credit limit when the account is initially opened.They typically charge cardholders an annual credit card fee for credit cards. In addition to periodic interest charges, they also charge cardholders other fees as specified in the cardholder agreements. These fees may include fees for late payments where a cardholder has not paid at least the minimum payment due by the required due date, returned checks and balance transfer transactions. These fees are based on a standardized schedule and can vary based on the type of merchant.Apart from interest and fees from cardholders, they also receive interchange fees from the merchant acquirer that settles their cardholders’ transactions with merchants and as business development incentives from the payment networks. Interchange fees comprised 21.1% and 21.9% of total revenue from operations in the six months ended September 30, 2018 and 2019, respectively, and 22.5% in fiscal 2019, 21.5% in fiscal 2018 and 19.3% in fiscal 2017.Lifecycle of a credit card transactionA typical credit card transaction begins when a cardholder purchases goods or services from a merchant using SBI Cards credit card.After the transaction is authorized by the credit card issuer through the payment network, the credit card issuer pays the purchase amount to the payment network net of interchange fees.The payment network, in turn, then pays the purchase amount to the acquirer.Finally, the acquirer pays the purchase amount to the merchant net of acquirer fees.Financial Statement AnalysisIn every result declared, firm has been writing down 15% as bad debts and impairment. That’s because they are into unsecured lending but NPAs are contained as the size is huge.Findings from FinancialsPeer Set GlanceThey have a broad credit card portfolio that includes SBI Card-branded credit cards as well as co-branded credit cards that bear both the SBI Card brand and their co-brand partners’ brands.Objects of IssueOffer for sale for exiting investor and fresh issue funds to augment capital base (Capital adequacy ratios)Industry and CompetitionThere are a total of 74 players offering credit cards in India, with the top three private banks (HDFC Bank, Axis Bank, and ICICI Bank) and SBI Card, as the leading pure-play credit card issuer, dominating the credit card business with a total of ~72.0% market share by number of outstanding credit cards as of March 2019 and approximately 66.0% market share by credit card spends in the fiscal year 2019.Leaders by Market ShareLeaders by Card SpendsHDFC Bank is the market leader and has maintained its market share in the number of outstanding credit cards at approximately 27.0% over the years, followed by SBI Card at 18.0%, ICICI Bank at 14.0% and Axis Bank at 13.0%. The market share of SBI Card in terms of total outstanding cards has continuously increased over the years from 15.0% in fiscal 2014 to 18.0% in fiscal 2019.The next six players, after the top four, together accounted for 22.0% of outstanding credit cards in fiscal 2019. New players such as RBL Bank have been emerging strongly mainly on the back of co-branded cards. RBL Bank now accounts for approximately 4.0% of the credit card market. Foreign players such as Citi Bank has been losing market share over the years from 13.0% in fiscal 2014 to 5.0% in fiscal 2019 owing to aggressive growth from private banks and new players in the market.Acquisition PriceSupporting InfraThe Point of Sale (POS) infrastructure in India has more than doubled over the past five years from 1.1 million in fiscal 2014 to 3.7 million in fiscal 2019, but it remains weak in terms of availability. According to RBI Payment and Settlement System in India (Vision 2019-2021), acceptance infrastructure, particularly POS terminals, mobile POS and asset-light terminals, as a percentage of the total number of debit and credit cards is low. Hence there is a need to increase the penetration of acceptance infrastructure in the country. RBI expects to have 5.0 million active POS by the end of 2021.RisksOver 486 Tax proceedings against SBI (promoter) of Rs 39056 Cr (Net worth of SBI cards was 4381 Cr in 6MFY20)Poor economic conditions reduce the usage of credit cards and the average purchase amount of transactions on credit cards, both of which reduce interest and fee incomes.Promoter (SBI) is selling a partial equity stake through this offering. Although Promoter would require the RBI’s approval to relinquish control in SBI Cards, they cannot assure that SBI would not divest additional equity stakes in SBI cards in the future. Therefore, SBI Cards cannot assure that they will continue to enjoy the same level of support from SBI in the future. This could also hamper certain of decision-making processes and could result in sudden or unexpected changes in management, corporate policy and strategic direction, each of which could adversely affect them. (Support was - in its capacity as a commercial banking institution, SBI had extended working capital loans and non-convertible debentures to SBI cards, out of which ₹97,666.01 million remained outstanding as of September 30, 2019. SBI has also contributed several members of SBI Cards’ key management personnel, and have also leveraged Promoter’s existing infrastructure and management expertise to support some of the business functions such as IT infrastructure, compliance and risk management, human resources and support for certain information systems. They also benefit from certain pricing advantages derived from Promoter’s size and scale in negotiating third-party vendor contracts, where they may in certain instances obtain more attractive group rate discounts than could have obtained otherwise. Finally, the Promoter is also the sponsor bank for one of the payment network agreements, and withdrawal of Promoter’s support from this arrangement and inability to find another sponsor bank may result in a disruption of that payment network agreement. SBI Cards arrangements with Promoter are not exclusive. As a result, the Promoter (SBI Bank) could enter into similar or competing relationships with third parties, including competitors. In addition, the agreements governing arrangements with Promoter allow Promoter to terminate such agreements upon notice without cause. The termination of any of such arrangements could have a material adverse effect)Competition with other credit card issuers and payment solutions providers such as banks, payment banks, NBFCsand financial technology enterprises on the basis of a number of factors, including brand, reputation, customer service, product offerings, incentives, pricing, technology, and other terms. In particular, mobile, e-wallet and tokenization platforms, including the increasingly prevalent unified payments interface platform, present formidable competition as they are able to attract large payment volumes at low or no payment processing fees to merchants.In fiscals 2019, 2018, and 2017, new accounts acquired from Promoter’s customer base accounted for 55.2%, 45.5%, and 35.2%, respectively, of total new accounts.Credit RatingsCurrently rated AAA and A1+ by both CRISIL and ICRA.Positive TriggersIndia’s per capita GDP is expected to grow at a CAGR of 6.0% over the next five years till Rs. 142,000 in fiscal 2024.According to CRISIL Research, India’s median population age is estimated at 28.4 years in the calendar year 2020. Indonesia and South Africa are the only countries which has median population age closer to India at 29.5 years and 27.6 years, respectively. Japan had the highest median population age of 48.4 years. With a low median age, India holds the advantage of having an increased working population going forward. This population group is aspirational which will contribute to private consumption and GDP growth rate. The figure below depicts the median age for India as compared to other countries in the calendar year 2020.Credit Penetration set to improve as there is a huge scope.Unsecured loans, which comprise of credit cards, personal and consumer durables loans, is a strong growth driverof retail credit. Compared to retail credit, unsecured loans have grown at a faster pace in India at a CAGR of 28.0% to reach approximately 5.0 trillion unsecured loans as of fiscal 2019. For many customers, especially millennials (persons below 30 years of age), unsecured loans would be the first form in which they access credit.Discretionary spending set to increase due to more millennial populationDigital ThemeChart Sources - DRHP of SBI Cards filed with SEBIExcel Charts - Made by me.Analysis - done by me.Hope this helps,Aditya Kondawar