The story of Apple Pay with Jennifer Bailey

0:00:01 (soft music)
0:00:03 If you look down at your phone,
0:00:06 there are so many objects that exist in the physical world
0:00:08 that have been absorbed into it.
0:00:12 Maps, calculators, mail, clocks,
0:00:15 and of course for many, your wallet.
0:00:16 In today’s episode, you’ll get to hear
0:00:19 from one of the people who helped build Apple Pay
0:00:22 and Apple Wallet into these crazy little pocket computers.
0:00:25 Passing over the mic to A16C general partner,
0:00:27 Alex Rampell, to properly introduce our guest.
0:00:30 (soft music)
0:00:35 (phone beeping)
0:00:42 Hi, I’m Alex Rampell, a general partner at A16Z.
0:00:44 In this conversation, I talked to Jennifer Bailey,
0:00:47 the legendary vice president of Apple Pay and Apple Wallet,
0:00:49 whose work has revolutionized everything
0:00:52 from digital payment to transit cards, contactless tickets,
0:00:54 hotel and car keys and more.
0:00:57 Since overseeing the launch of Apple Pay a decade ago,
0:00:59 Jennifer has led its expansion
0:01:01 in the 75 markets worldwide,
0:01:05 now encompassing over 11,000 bank and network partners.
0:01:07 In this conversation, we cover her unconventional path
0:01:09 rising through the ranks at Apple,
0:01:11 the challenges she confronted pushing Apple Pay
0:01:15 into the mainstream, new Apple verticals on the horizon
0:01:18 and her hard-earned advice for early entrepreneurs.
0:01:19 Let’s dive in.
0:01:22 As a reminder, the content here
0:01:24 is for informational purposes only,
0:01:26 should not be taken as legal, business, tax
0:01:27 or investment advice,
0:01:30 or be used to evaluate any investment or security,
0:01:31 and is not directed at any investors
0:01:34 or potential investors in any A16Z fund.
0:01:37 Please note that A16Z and its affiliates
0:01:38 may also maintain investments
0:01:40 in the companies discussed in this podcast.
0:01:43 For more details, including a link to our investments,
0:01:46 please see a16z.com/disclosures.
0:01:50 Jennifer, thank you for being here.
0:01:52 You started off as a software engineer,
0:01:54 now everybody becomes a software engineer.
0:01:56 I think it’s the most popular major in college,
0:01:58 but in 1980, that was not a thing.
0:02:00 But maybe walk through how you started.
0:02:02 – It really goes back to my childhood
0:02:05 because I moved to Silicon Valley when I was six
0:02:07 and my dad was in the semiconductor industry.
0:02:10 So everyone we knew were pretty much in that phase
0:02:13 of technology in Silicon Valley.
0:02:14 And so when I went off to college,
0:02:17 I started with math, computer science,
0:02:19 and my first job out of college was,
0:02:21 as you noted, a software engineer.
0:02:25 It was a fantastic grounding and really exciting time
0:02:27 to be in the industry back then.
0:02:29 – Any particular memory stand out?
0:02:31 – One of the things I loved about what I did
0:02:34 in my early career is I was a lot of early stage companies.
0:02:36 Some of them were successful and some of them were not.
0:02:39 And I would say you learn from both,
0:02:42 both the success as well as the failure.
0:02:44 And even when I look for hiring people today,
0:02:47 I love to see them having come from early stage companies
0:02:50 ’cause they sort of understand what it takes.
0:02:52 – Yeah, success can be a dangerous teacher,
0:02:53 but so can failure.
0:02:54 If you only work at places that never get
0:02:56 to product-market fit, it’s hard to learn anything
0:02:58 except you never get to product-market fit.
0:02:59 – Exactly. – I agree.
0:03:02 Our firm is highly intertwined with the Netscape story.
0:03:04 Netscape, for those that don’t know,
0:03:06 was really synonymous with the explosion
0:03:07 of this new thing called the internet.
0:03:09 How did you get involved with Netscape?
0:03:11 What was it like working there?
0:03:13 – It truly was, I think, the beginning
0:03:14 of the commercial internet.
0:03:16 Certainly not the technical internet,
0:03:18 but the commercial internet.
0:03:21 And a lot of things were emerging at that time.
0:03:25 The search business, Yahoo formed in those early years.
0:03:27 InfoSeq was another one of the search companies.
0:03:30 And then certainly a few years after that came Google.
0:03:33 And so it was an incredible time
0:03:36 where so much formulation was happening
0:03:38 around this crazy thing called the internet.
0:03:41 The company, if you asked what it was like to work there,
0:03:43 you know, it was a bit chaotic, like most startups,
0:03:46 but it was a challenge in terms of finding
0:03:49 to your product-market fit with a revenue model.
0:03:50 ‘Cause as you know, the internet emerged
0:03:54 and browsers emerged to be something that needed to be free.
0:03:56 And that was our primary business model at the time.
0:03:59 We transitioned to do both server technology
0:04:02 as well as what we would have called a portal,
0:04:05 which is what you would consider Yahoo was
0:04:07 in the days where we were aggregating content
0:04:10 and information and search technology
0:04:13 and trying to monetize that through advertising.
0:04:14 – Was there anything that you brought
0:04:16 with you from Netscape?
0:04:19 I just remember when Netscape was taking off
0:04:21 and people here talking about tech bubbles,
0:04:22 but there was one real tech bubble,
0:04:25 which was really the late ’90s
0:04:27 where there were companies that would get formed.
0:04:29 They’d go public like four months later
0:04:33 and it was all on the back of the internet becoming a thing.
0:04:35 If you were to think through the biggest learnings
0:04:36 that you had from that experience,
0:04:38 anything that really stands out?
0:04:40 – I’d say it was two things.
0:04:43 One is having a strong, resilient, smart team
0:04:46 that could really change with the times
0:04:50 and move quickly to new forms of business
0:04:51 was really, really important
0:04:54 and having that flexibility not being stuck
0:04:56 in a single model, especially back then
0:04:59 when sort of unclear exactly what the internet was
0:05:02 and how it was gonna monetize.
0:05:04 I think the second thing that you learn in startups,
0:05:06 and I actually see this in Apple,
0:05:10 is a lot of success is based on great timing.
0:05:12 And some of that’s predictable
0:05:14 and some of that’s not predictable.
0:05:17 But I think the timing of when these companies
0:05:19 come to market, how they come into market
0:05:23 and how quickly they invest can make a huge determinant
0:05:26 in the success of a business.
0:05:28 – Yeah, it’s probably a good segue to Apple
0:05:30 because I think the most amazing companies
0:05:32 exist at the beginning of a product cycle
0:05:35 or in fact, even better, they create the product cycle.
0:05:38 So Microsoft and Apple in the early ’80s
0:05:41 with the operating system for the personal computer
0:05:42 and then the internet.
0:05:44 And the problem is, as you mentioned,
0:05:46 Netscape didn’t really hold on to that platform.
0:05:48 They were the access point and then it became free
0:05:50 and then Microsoft got in trouble in the ’90s
0:05:52 for making it free in a very punitive way
0:05:54 to Netscape’s peril.
0:05:58 But the smartphone was that next platform.
0:05:59 Everything that we think of today
0:06:01 was really because of the smartphone
0:06:05 and maybe walk me through, how did you rejoin Apple?
0:06:08 And that must have just been an incredible experience.
0:06:09 – Yeah, it was super fascinating.
0:06:13 So I came back to work for Tim running the online stores.
0:06:14 I was where the e-commerce was really emerging
0:06:17 on the internet, which made my Netscape background
0:06:18 pretty relevant.
0:06:21 But when I came back, actually the first new platform
0:06:24 was really iTunes and the iPod.
0:06:27 So the iPod was introduced, I think, in 2001.
0:06:30 I came back in 2003 and that’s when we really launched
0:06:33 iTunes for Windows, which is where the growth
0:06:35 really started to take off for the company.
0:06:38 When I came back in 2003, it had been pretty flat
0:06:40 and why we weren’t running out of cash,
0:06:41 we weren’t growing the business that great.
0:06:44 But once we released iTunes for Windows,
0:06:46 that trajectory really started to change.
0:06:49 And then that became the platform, if you will,
0:06:52 for the iPhone and iOS.
0:06:56 And so the company reinvented itself many times.
0:06:57 We used to be a computer company
0:07:00 and then we were sort of this music player company
0:07:02 and then of course the phone company.
0:07:06 And that continued to provide great growth opportunities
0:07:09 and challenging roles within the company to do new things
0:07:12 and continue to really grow the footprint
0:07:14 that Apple had and the consumer base that we had.
0:07:17 – So how did I assume that there’s a magic link
0:07:21 and a very, very narrow one between running an online store
0:07:23 where you accept lots of payments
0:07:25 and the beginning of Apple Pay?
0:07:27 Am I correct on that or am I incorrect?
0:07:29 – Well, I mean, my story to come over to Apple Pay
0:07:31 is sort of an interesting one.
0:07:33 I had been running the online store for 10 years
0:07:35 and I was ready for a new growth opportunity
0:07:37 and I went to Tim and I said,
0:07:38 you know, I’m ready to do something else.
0:07:41 And he said, well, do you want a big operational job
0:07:43 or do you want to do something that’s more like a startup?
0:07:46 And I said, well, I think I’d rather do a startup,
0:07:48 you know, because that’s what my background had been in.
0:07:51 And I love that part of the creation phase
0:07:53 and the risk taking phase and all of that.
0:07:57 And so there were a few things that he had me go look at
0:08:01 and there were some engineers working on the core technologies
0:08:06 associated with Apple Pay like the NFC and wireless capabilities
0:08:08 and the secure elements and the technologies
0:08:08 that we were using.
0:08:12 And so really was in the formation stage
0:08:14 from a technology standpoint and then we decided,
0:08:17 yeah, we really want to do this mobile payments thing.
0:08:20 And it turned out, I knew a little bit about payments
0:08:23 from the online store, not a ton, but new enough,
0:08:26 I think to come in and help start the business
0:08:29 and get it formulated and bring the resources together
0:08:31 into a cohesive team.
0:08:32 – What was the inspiration?
0:08:35 Because if you’re the platform, which Apple was becoming,
0:08:37 there’s so many different directions that you can go.
0:08:39 I remember talking to this guy at Facebook
0:08:41 and we were talking about a couple ideas
0:08:43 and he said something to me that I’ll never forget.
0:08:45 He’s like, Alex, that’s a good idea,
0:08:47 but there are so many gold bricks lying around
0:08:48 that are closer.
0:08:50 We just like every day we can just pick up gold bricks
0:08:53 because we’re the platform, we have all these things
0:08:55 and you know, which gold bricks do you pick up
0:08:59 in which order controlling payments is very useful,
0:09:01 but there are so many other things that I imagine
0:09:03 Apple could and thought about doing.
0:09:04 Why do you payments?
0:09:08 – We just felt like payments was an area
0:09:12 that had a couple of friction points
0:09:14 and things that we could really solve for customers
0:09:15 that we thought were really important.
0:09:18 And the first was obviously making payments
0:09:19 much more secure.
0:09:21 You know, these plastic cards have been around
0:09:22 for a long time.
0:09:23 We looked at that and said, hmm, gee,
0:09:25 I think there’s some better technology
0:09:27 than using plastic cards to do this kind of thing.
0:09:29 We thought we could make it easier.
0:09:31 We thought we could make it more private for customers.
0:09:34 And with the technologies that we had developed
0:09:38 as we looked at the user experience back then even,
0:09:41 I think there was a view that in some number of years,
0:09:43 everyone should be paying this way.
0:09:45 – And I remember 10 years ago,
0:09:47 this idea of contactless payments,
0:09:50 had the EMV switch over the liability shift
0:09:52 been formalized at that point or no?
0:09:54 – No, one of the things you find out about payments
0:09:56 when you get into details is very different
0:09:57 on a global basis.
0:10:00 So in the US, contactless was not a thing, right?
0:10:02 When we launched Apple Pay,
0:10:05 I believe contactless acceptance was at 3%.
0:10:08 But we saw outside the US in places like the UK
0:10:11 and Australia, high adoption of contactless cards
0:10:15 where regulators there had mandated the move much faster
0:10:18 and much earlier than in the US.
0:10:19 So as we launched in these countries,
0:10:24 we could really see the benefit and the uptake of Apple Pay
0:10:25 where acceptance was high.
0:10:29 And so we knew that the experience was fantastic,
0:10:30 people are gonna love it,
0:10:32 but we had to work through this acceptance program.
0:10:36 And what helped us was as we were launching Apple Pay,
0:10:38 they were mandating chip acceptance,
0:10:40 which really required merchants in some ways
0:10:42 to upgrade their hardware.
0:10:44 So if they were upgrading their hardware to do chip,
0:10:46 they might as well upgrade it to do contactless as well.
0:10:49 So that helped us as well,
0:10:51 but still took time in the US,
0:10:52 as you probably know,
0:10:54 it has taken time in the US to get to the acceptance levels
0:10:56 that some of these other countries have.
0:10:59 – So Apple Pay is 10 years old now.
0:11:00 What were the biggest challenges
0:11:02 that you had getting that kicked off?
0:11:06 Because it was banks, it was merchants, it was issuers,
0:11:08 there were lots of different parties involved.
0:11:11 And everybody kind of probably saw you as a threat
0:11:13 and an opportunity to some degree.
0:11:15 – As you point out, it’s really a multi-sided network.
0:11:16 And so those are hard.
0:11:18 You know, you have the chicken and egg problem.
0:11:20 I think the good news here is that the banks,
0:11:23 particularly the early banks that we worked with,
0:11:25 both in the US on a global basis,
0:11:29 really did see the benefits of the privacy and the security
0:11:32 and could understand that customers would really want
0:11:35 to do this over the longer term.
0:11:36 So there were technical requirements
0:11:37 that the banks had to do.
0:11:39 And so that took time,
0:11:42 but I think the value proposition that they saw,
0:11:46 they liked and they were also in the phase of trying
0:11:50 to drive more mobile engagement with their customers,
0:11:52 more mobile downloads of their apps.
0:11:56 And so having Apple Pay helped achieve
0:11:59 not only better security and payments,
0:12:00 but also more mobile engagement
0:12:02 and download of their banking apps.
0:12:04 And so that was really positive.
0:12:07 The biggest challenge was really acceptance
0:12:08 and trying to get acceptance really
0:12:11 as ubiquitous as possible.
0:12:12 – Well, and also there’s Apple Pay online
0:12:13 and Apple Pay offline.
0:12:16 And what I thought was interesting is that you picked
0:12:18 the harder problem first to a certain degree.
0:12:20 – Which was offline.
0:12:24 How did you decide to do the offline before the online?
0:12:26 How did you think about that?
0:12:27 – Well, first of all, at the time and still today,
0:12:30 obviously the vast majority of payments,
0:12:32 if you look at the aggregate, I think 80%,
0:12:35 something like that of the transaction volume
0:12:36 is still really coming offline.
0:12:39 And so I think that and the combination
0:12:43 of the hardware technology and the capabilities that we had,
0:12:46 we felt like it was a fantastic use of NFC
0:12:48 and the secure element chip.
0:12:51 And just the whole technical architecture
0:12:54 was really made for offline in many respects.
0:12:58 And so I think because the scale was there,
0:13:00 we obviously saw these markets outside the US
0:13:03 that had fantastic contact acceptance.
0:13:06 So going after the offline market seemed to be
0:13:10 where the most consumer impact would be.
0:13:11 – Got it.
0:13:12 There’s a famous line from the book,
0:13:14 “The Sun Also Rises.”
0:13:15 It’s actually about bankruptcy,
0:13:16 but it’s like one character asks another one like,
0:13:17 “How did you go bankrupt?”
0:13:20 And he said, “Two ways slowly than all at once.”
0:13:23 And if I kind of think through Apple Pay,
0:13:25 I remember like I heard about it
0:13:27 and now it’s all at once.
0:13:29 I mean, there’s not a single place
0:13:30 that I can’t pay with my watch.
0:13:31 It’s incredible.
0:13:33 I go around the world.
0:13:34 How did it really take off?
0:13:37 Or when did you feel like it was really taking off?
0:13:39 – When we launched in the US,
0:13:40 we knew it would be slow going
0:13:43 given the acceptance infrastructure here.
0:13:45 As we looked outside the US though,
0:13:47 we could really see and as we launched
0:13:49 in more of these countries that had contactless acceptance,
0:13:51 we could really see it take off in the consumer base.
0:13:54 So we knew that the, I like to call it the formula,
0:13:56 you know, the formula of the value proposition
0:13:58 for the consumer was really there
0:13:59 ’cause we could see the growth happening
0:14:01 in these other markets.
0:14:04 So when you look at it in global terms,
0:14:08 I would say maybe three, four years into Apple Pay,
0:14:11 we felt like, okay, this is really gonna scale
0:14:13 given what we were seeing primarily
0:14:14 in the international markets.
0:14:17 And then at that time, we started adding functionality
0:14:20 like online, we started adding transit
0:14:22 and some of the other wallet capabilities
0:14:24 that also take advantage of some of these technologies
0:14:26 that we have built into the phone.
0:14:29 And so with those additional capabilities,
0:14:32 we knew that we could get this to a global scale.
0:14:34 – What was the order of operations for global?
0:14:36 There’s a lot of companies that want to go global.
0:14:37 There’s the Domino version,
0:14:39 which is you start off in one country,
0:14:41 then you go to the adjacent, you’re in Canada,
0:14:42 then you go to the US,
0:14:44 and then you go to, I don’t know, Mexico or something.
0:14:47 How did you think through global expansion?
0:14:50 What were the biggest surprises or challenges
0:14:52 in scaling it up globally?
0:14:53 – Yeah, it’s a great question
0:14:56 ’cause as you know, payments can be a very local thing
0:14:57 in countries.
0:15:01 Most financial services are very local, country specific.
0:15:03 When we looked at expansion priorities,
0:15:04 we really were looking at a couple of things.
0:15:05 First of all, obviously,
0:15:07 how large was the act of iPhone based
0:15:10 ’cause you can’t do Apple Pay unless you have an iPhone.
0:15:13 The second thing was contactless infrastructure.
0:15:16 Wasn’t an early or a late market.
0:15:20 And then the third was the ecosystem available
0:15:22 and ready to do the work in integration
0:15:24 and sort of willing to do the integration.
0:15:26 And where that’s important is when you look at countries
0:15:31 that have a large domestic or dominant domestic,
0:15:32 typically debit networks.
0:15:34 So you might think of Cart Boncair
0:15:38 or Giro Cart in Germany, FPOS in Australia.
0:15:41 Those were the factors that we would look at.
0:15:44 We were really started in the biggest iPhone markets first
0:15:47 where we could get the right level
0:15:51 of payment infrastructure support and looked at contactless.
0:15:52 And then from there, we just kept going down.
0:15:55 So some of the markets were truly fascinating
0:15:59 like Saudi Arabia was a country that we worked
0:16:02 with the domestic network, it’s called MADA.
0:16:04 And from a regulatory standpoint,
0:16:07 they basically mandated everyone to go contactless,
0:16:09 all merchants at once.
0:16:11 And so Saudi Arabia skipped
0:16:13 the whole contactless card evolution.
0:16:15 They just went straight to mobile.
0:16:16 And so there were countries like that
0:16:18 where from a regulatory standpoint,
0:16:20 they’re much more coordinated
0:16:22 than in a country like the US.
0:16:25 And then we would see countries like France and Germany
0:16:28 which have been on the slower adoption curve contactless
0:16:30 but are now really taking off
0:16:32 from a contactless perspective.
0:16:34 Those were big markets for iPhones though.
0:16:35 So we went pretty early
0:16:37 and then just started to do the business development work
0:16:40 and market development work to get the acceptance
0:16:42 that we needed in the footprint that we needed.
0:16:44 – You mentioned privacy and security
0:16:47 as a key impetus for developing Apple Pay to begin with.
0:16:49 I mean, particularly when I pay online,
0:16:53 if I’m entering my CVV in all of these account details,
0:16:54 I don’t know what happens to them
0:16:56 when the merchant receives them
0:16:57 and they might just store them.
0:16:59 And again, if I’m paying with Apple Pay,
0:17:00 I don’t have to worry about that.
0:17:03 Apple is very privacy and security concerned.
0:17:04 – Yeah.
0:17:06 – How did you try to reinvent things?
0:17:08 And I’m sure there was some back and forth
0:17:11 with kind of old fashioned infrastructure along the way.
0:17:12 – Yeah, definitely.
0:17:15 In the early days and the early design of Apple Pay,
0:17:19 we were collaborating with obviously internally
0:17:22 on the engineering side, but also with the networks.
0:17:23 You know, the tokenization schemes
0:17:24 that we use our network base.
0:17:26 So Visa, Mastercard, AMX,
0:17:29 and then now we work with these domestic networks as well.
0:17:32 And so it took collaboration and design really
0:17:35 across these parties to agree on
0:17:38 what was the best technical architecture
0:17:40 and the most secure architecture.
0:17:43 And so there are pieces obviously on the phone side,
0:17:47 the things like taking a token, encrypting it,
0:17:49 storing that in the secure element,
0:17:52 and it can only be released with a biometric.
0:17:54 And then on the network and bank side,
0:17:57 being able to take those tokens,
0:18:01 validate the cryptogram, validate and translate the token
0:18:04 in a way that the banks could have processed the transactions.
0:18:05 So it was collaborative.
0:18:09 And we really focused on security first,
0:18:11 as you mentioned with a lot of these technologies
0:18:15 that were just in the early stages of coming to life.
0:18:18 The second thing that we did on the privacy side,
0:18:21 I remember really some very specific design meetings
0:18:23 where we would talk through different architectures
0:18:26 about how the transactions could flow
0:18:28 and how they would be detokenized
0:18:30 or how the cryptogram would be read.
0:18:34 And we were very clear and specific in our design goals
0:18:36 that we did not wanna have that data.
0:18:37 We didn’t wanna be able to see it,
0:18:39 we didn’t wanna be able to aggregate it.
0:18:41 It was very clear in our design
0:18:44 that when you pay in store today using Apple Pay,
0:18:46 we don’t see that transaction.
0:18:48 It goes up the traditional payment infrastructure
0:18:50 into the network and into the issuers
0:18:51 through the acquires, et cetera.
0:18:55 And so that was a very specific design goal of ours,
0:18:57 which was to make sure that we weren’t,
0:19:00 if you will, a honeypot for all of this
0:19:01 very sensitive transaction data.
0:19:04 So it was really designed from the beginning
0:19:08 to be architected that way from a privacy perspective.
0:19:11 – So maybe we could leap from Apple Pay to Apple Wallet.
0:19:13 I’m a big fan of this because last night,
0:19:15 I took my 15-year-old to a San Francisco
0:19:17 Symphony Orchestra concert.
0:19:20 My parking pass was in my Apple Wallet.
0:19:22 Our tickets were in my Apple Wallet.
0:19:23 And now that we’ve already seen that show,
0:19:25 they’ve disappeared from my Apple Wallet,
0:19:27 so we don’t have to worry about them cluttering it up.
0:19:28 But I have all sorts of things in my Apple Wallet.
0:19:31 How did Apple Wallet become a thing?
0:19:33 Maybe kind of talk about the origin story of that.
0:19:35 – The precursor to Wallet was really
0:19:40 when we started airline boarding passes a long time ago.
0:19:43 And ever since then, I think we’ve had a goal, I would say,
0:19:44 that in the long arc of time,
0:19:46 we would like to replace your physical wallet.
0:19:49 And so as the years have gone by,
0:19:52 we have focused on different things that are in your wallet.
0:19:55 Tickets is one, transit passes is another.
0:20:00 You can now tap to ride in over 250 cities globally,
0:20:02 just with your phone or Apple Watch.
0:20:05 Some of those use proprietary transit cards.
0:20:07 Some of those use what we call open loop,
0:20:09 which would be standard debit and credit cards.
0:20:12 We’ve done work around loyalty.
0:20:14 As you know now, we also do student ID.
0:20:17 So many campuses on the United States now,
0:20:19 you can add your student ID to Wallet.
0:20:22 You can tap to get food, tap to get into your dorm,
0:20:23 tap to check out library books
0:20:25 if anybody does that anymore.
0:20:29 – Car keys, we have launched with about 10 brands now.
0:20:31 – I have one, that’s all right.
0:20:33 I don’t even have a car key, it’s my watch.
0:20:35 My watch opens by BMW, it’s amazing.
0:20:37 – I love that feature as well.
0:20:39 So we have car keys, we’ve worked with Disneyland
0:20:42 on access passes to Disney World.
0:20:45 We just launched scooter keys in Taiwan,
0:20:48 and we’ll be expanding that into other Asian countries
0:20:50 as well as hotel keys.
0:20:52 So I think all those things that you think about
0:20:54 that you carry in your wallet or your keys,
0:20:57 we’re really on a path to try to replace those
0:21:01 with more secure and private versions of all of those.
0:21:04 And so we know that in the future,
0:21:06 you will be able to leave your wallet at home.
0:21:08 The last area I forgot to mention,
0:21:10 we are starting to work on IDs.
0:21:13 We work with a number of states in the US
0:21:17 to provision state driver’s licenses into your Apple Wallet.
0:21:19 First acceptance is at TSA locations,
0:21:21 typically in those states.
0:21:23 And then we’ve just enabled this last year
0:21:26 the iPhone actually to be an acceptance reader.
0:21:28 So if you were a bar as an example
0:21:32 and you wanted to check IDs using your iPhone,
0:21:35 you could do that with an app to check IDs that way.
0:21:39 So I hope soon that you and I will be able to leave
0:21:41 our California driver’s licenses at home.
0:21:43 – I have a DMV appointment in two weeks,
0:21:46 which was the first one available to get my real ID.
0:21:48 So I’m very, very excited to not do that in the future
0:21:49 and just go through Apple.
0:21:50 That might be a good question,
0:21:53 which is are most of these things inbound to you
0:21:56 or do you go out to states or, you know, IDs
0:21:58 or just like, you know, ski ticket passes.
0:22:00 I imagine everybody knows what the iPhone is.
0:22:03 Everybody knows what Apple Wallet is.
0:22:04 Are people coming to you?
0:22:05 Do you go to them?
0:22:08 And then I guess the kind of natural follow-on question is,
0:22:09 will there be an app store?
0:22:11 If I want to apply for my next credit card,
0:22:14 why can’t I do that within the Apple Wallet?
0:22:16 Like, ooh, I don’t like my current credit card.
0:22:18 I want to add a new one, push plus,
0:22:20 and then the application is right there.
0:22:22 Yeah.
0:22:23 So let’s start with the first part of that,
0:22:26 which is whether it’s inbound or outbound
0:22:27 from our perspective.
0:22:30 And I would say, usually in the very early stages
0:22:33 of a vertical, so we would call keys a vertical
0:22:35 and transit as a vertical,
0:22:40 I would say that it’s largely us outbounding
0:22:45 to a couple of the key infrastructure partners
0:22:48 to collaborate, you know, under NDA
0:22:53 on the kinds of experiences we think we can enable.
0:22:55 So just like payments,
0:22:58 we have to work really closely with these integrators
0:23:00 because we don’t own the whole tech stack.
0:23:02 You know, we own the tech stack that sits on the iPhone
0:23:05 and some servers here that, you know, make the connections.
0:23:07 But we have a lot of infrastructure partners,
0:23:11 whether it’s access partners who do corporate access
0:23:14 or it’s ticketing vendors who do access into stadiums,
0:23:17 we have to work with them very collaboratively.
0:23:21 So it’s outbound initially, usually in a vertical
0:23:22 and then it’s very much inbound.
0:23:25 So when people understand that as an example
0:23:27 that we’re working on IDs,
0:23:29 we have a lot of governments reaching out to us like,
0:23:32 hey, how can we work together on IDs as an example?
0:23:35 ‘Cause they understand that what our technology platform is,
0:23:37 what capabilities we can bring to bear.
0:23:39 And one of the things we really work on
0:23:41 in terms of trying to get these to more countries
0:23:43 more quickly is the scalability of our ability
0:23:45 to do these integrations with partners.
0:23:47 And I think your second question,
0:23:48 remind me your second question.
0:23:51 – I was gonna have like an app store for my wallet.
0:23:52 Like what do I add to my wallet?
0:23:55 – So we have debated this internally.
0:23:56 It’s a really good question.
0:23:59 If you think about the marketplaces today that exist,
0:24:01 pick one for financial services,
0:24:03 somebody like Credit Karma as an example.
0:24:07 Credit Karma uses a lot of personal data
0:24:10 to be able to best match you
0:24:13 and the hundred things they have in their marketplace
0:24:16 that might be related to what you’re looking for.
0:24:20 And so I think given that we don’t have the data,
0:24:22 at least sitting in our servers,
0:24:24 which is the way Credit Karma does it,
0:24:26 and most marketplaces are server-based,
0:24:28 we have not gone down a path
0:24:31 to do things that are more marketplace-oriented.
0:24:33 I think you could imagine a world
0:24:36 where more of that data resides on the device
0:24:39 and the consumer has control of that
0:24:41 and can say, yes, I wanna provide this data
0:24:43 for the purposes of you giving me
0:24:46 the best recommendation in credit cards
0:24:47 or giving me the best recommendation
0:24:50 in whatever financial service you want.
0:24:55 But that does not exist today in any sort of real form.
0:24:58 You can imagine things like we do open banking in the UK,
0:25:00 which is a regulatory enablement
0:25:04 to allow people to connect their Apple Pay cards
0:25:05 to their bank account.
0:25:08 And then that allows us to show the consumer
0:25:10 things like their account balance for their debit.
0:25:12 So when they’re making a purchase, they can see,
0:25:14 I do have the funds in my debit account
0:25:15 to actually make this purchase.
0:25:17 And so in the future, you could see
0:25:21 if open banking becomes a reality in the long term,
0:25:24 you could see that data being on the device
0:25:26 as we do in the UK and giving users control over it,
0:25:29 and that way being able to provide
0:25:32 more of this filtered matching service.
0:25:35 But today it’s very hard to do without a lot of data
0:25:38 that sits in servers and that’s not a model
0:25:40 that we would pursue.
0:25:43 – Okay, so maybe on that topic, talk about the Apple card.
0:25:46 Why decide to kind of both host the wallet
0:25:48 and have your own proprietary product for it?
0:25:50 – I would say for years and years, and again,
0:25:52 I’ve been at Apple, as you said, a long time,
0:25:54 there’s always a discussion about
0:25:56 whether Apple should have a co-brand card.
0:25:58 Very common thing for large companies
0:26:00 that are merchants in particular,
0:26:03 whether you’re thinking Best Buy or Macy’s or whatever.
0:26:05 And obviously we’re a large merchant
0:26:07 through the App Store as well as our Apple Store.
0:26:10 And I think until we got through our first several years
0:26:13 of Apple Pay and had a lot of experience
0:26:16 working with the banks and spent a lot of time
0:26:18 in financial services generally,
0:26:21 did we get comfortable, I think, with the idea
0:26:23 that we could actually create something
0:26:28 that was very differentiated and really highlighted
0:26:31 and showcased our values around this?
0:26:33 There are a lot of really bad things
0:26:36 that credit cards can do to consumers.
0:26:39 So as we looked at it, we really wanted to create
0:26:41 a credit card that people would use
0:26:43 to be more financially healthy.
0:26:45 Credit is a thing people need to have,
0:26:47 particularly when you live in a place like the US
0:26:49 where you can’t rent an apartment,
0:26:51 you can’t buy a car typically,
0:26:52 you can’t obviously own a home
0:26:54 unless you have an established credit record.
0:26:57 So it’s actually very important for people to have credit
0:27:00 and to be able to use credit responsibly.
0:27:03 So as we created Apple Card, we really wanted to do
0:27:04 a couple of things.
0:27:06 One was make it mobile first, of course,
0:27:08 all the way to the way we handled chat
0:27:11 and customer service, it’s all mobile first.
0:27:13 But the other things that we really wanted to do
0:27:15 was to make it, as I said, financially healthy.
0:27:17 And so we have this thing called the interest wheel
0:27:19 where you can put in your payment
0:27:21 and it’s gonna calculate how much interest
0:27:22 you’re gonna pay.
0:27:25 We have no fees associated with late fees
0:27:28 or foreign exchange fees and all these little gotchas
0:27:31 that can be not very transparent to consumers.
0:27:34 And we have ways to help people see how much
0:27:35 they’re spending in an easy visual way
0:27:37 and where they’re spending it
0:27:40 and to be able to really track their purchases quite easily.
0:27:43 And then Daily Cash, we thought long and hard
0:27:46 about the rewards program for Apple Card.
0:27:50 And many of our executives and many of our designers
0:27:53 had been using points cards, points programs
0:27:55 which are quite popular as you know in the US.
0:27:57 And I think the lack of transparency
0:27:59 in terms of what I’m actually really getting
0:28:01 in terms of value for my points
0:28:03 and the fact that card companies can value
0:28:05 and devalue those points really
0:28:08 without sort of any notice if you will to consumers.
0:28:12 We felt was not a great value proposition
0:28:13 in terms of the lack of transparency.
0:28:16 So we did something called Daily Cash
0:28:18 and so you get cash back every night
0:28:21 that you can spend using your Apple Cash card
0:28:23 to tap to pay anywhere or to send to friends and family.
0:28:25 So those were some of the things that we wanted to do
0:28:28 with the credit card when we started out to design it.
0:28:30 – I love it because my kids allowance
0:28:33 for whatever they spend money on comes from my Daily Cash.
0:28:35 So how about Apple savings?
0:28:37 It’s like kind of adding more proprietary products.
0:28:39 What was the impetus for that?
0:28:40 – Well, back to Daily Cash.
0:28:45 So we thought most points programs over time
0:28:47 feel like they’re devaluing.
0:28:49 So how can you take a points program
0:28:52 or rewards program in other words and help it grow?
0:28:56 And so that was really the idea behind savings.
0:28:59 It turns out, again, when we’re talking about timing,
0:29:02 the timing of our launch of savings was fantastic
0:29:05 because it was when interest rates were going up.
0:29:08 And so Goldman or partner was able to offer
0:29:12 a high savings rate, which actually drove not only people
0:29:14 to put their Daily Cash into their savings account
0:29:17 but also other deposits as well.
0:29:19 – Maybe I can ask two final questions.
0:29:21 Looking back at your time leading Apple Pay and Apple Wallet,
0:29:23 what are maybe two or three of the moments
0:29:24 that you’re most proud of?
0:29:26 – I have to say a couple of them
0:29:28 which wouldn’t maybe seem obvious to people.
0:29:31 I would say maybe the first time I stood in Tokyo
0:29:34 in one of the stations and used Apple Pay for transit there,
0:29:36 the throughput requirements to get people
0:29:40 through those turnstiles as you know is some second timeframe
0:29:41 from a performance perspective.
0:29:44 And seeing people just be able to tap their phone
0:29:47 or their Apple Watch and go through those turnstiles,
0:29:50 it is a phenomenal use of their technology.
0:29:52 So I’d say that was a really big one.
0:29:56 And I think another one that we were just really happy with
0:29:58 has been really changing Apple Card
0:30:00 and sort of setting a standard for some,
0:30:04 even offering and business practice associated with cards
0:30:05 that hadn’t been in the market before.
0:30:08 And so that was also a great moment.
0:30:09 But there are many, as you point out,
0:30:11 we’ve done a lot of cool things.
0:30:12 – I think if you legitimately as a founder,
0:30:13 you’re an entrepreneur,
0:30:15 you built this thing within this enormous company.
0:30:17 But any advice that you have
0:30:20 for other entrepreneurs or entrepreneurs?
0:30:22 – I’ll say this, even though it sounds
0:30:23 a little bit overdone on Trite,
0:30:27 which is truly staying focused on the customer experience.
0:30:31 And I always remember I’ve had new people start
0:30:33 from outside the company and they come in
0:30:36 and they don’t really realize how customer focused we are
0:30:39 until they see an executive make a decision
0:30:43 that costs us more, delays the timeline,
0:30:45 in order to do the right thing for the customer.
0:30:48 So I think a lot of companies say this,
0:30:50 but I don’t think they actually put their money
0:30:51 where their mouth is.
0:30:55 Second thing I would say is patience and tenacity
0:30:56 are everything.
0:30:58 So I’m sure many of your entrepreneurs know that,
0:31:01 but if you believe what you have is truly valuable
0:31:03 from a consumer perspective,
0:31:05 you need to stay patient and tenacious
0:31:06 in making it happen.
0:31:08 And that’s even true at a large company at Apple.
0:31:10 These things are not easy.
0:31:13 And so those characteristics come to be very important.
0:31:14 – All right, great.
0:31:15 Well, thank you so much for your time.
0:31:17 Really appreciate this amazing story.
0:31:18 – Thank you, Alex.
0:31:19 It’s great to talk to you.
0:31:24 – I’d like to thank our guests for joining “In the Vault.”
0:31:25 You can hear all of our episodes
0:31:30 by going to a16z.com/podcasts.
0:31:32 To learn more about the latest in fintech news,
0:31:36 be sure to visit a16z.com/fintech
0:31:39 and subscribe to our monthly fintech newsletter.
0:31:40 Thanks for tuning in.
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