Daybreak - Why Apple and HDFC Bank decided to break up their exclusive relationship

Episode Date: October 30, 2024

In the 2024 financial year, Apple sold products worth $8 billion in India. This was a third more than the previous year.But how did a premium company like Apple that hates giving discounts sell products worth 8 billion dollars in a country as price sensitive as India? Apple obviously knew that its phones were unaffordable for most people in India?It found an answer was easy financing. After the Covid-19 outbreak in 2020, Apple made financing tie-ups with banks a mainstay. And one of the most important deals Apple made was with India’s largest private sector lender, and leading credit card issuer HDFC Bank. In fact, it was one of the costliest deals HDFC had. Thanks to it, HDFC customers have been enjoying exclusive cashbacks on Apple products ever since.Here’s the bad news. The deal between Apple and HDFC is now over.What happened?Tune in.

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Two years ago, an Apple mobile retailer had told us that if you bury an iPhone in the ground, a customer will dig it out and leave money there. He wasn't far from the truth, because in the 2024 financial year, Apple sold products worth more than $8 billion in India. This was one-third more than the previous year. But how did a premium company like Apple that hates giving discounts sell products worth $8 billion in a country as price sensitive as India? The thing is, Apple knew that its phones were unaffordable for most people here.

And it also knew that it had to find a way to fix this problem. And the answer was in easy financing. So after the COVID-19 outbreak in 2020, Apple made financing tie-ups with banks a mainstay. And one of the most important deals that Apple made was with India's largest private sector lender and leading credit card issuer, HDFC Bank. Now, most of you will know that HDFC customers

have been enjoying exclusive, tempting cashbacks on Apple products ever since. But the bad news is, That is not going to happen anymore. Because the deal between Apple and HGFC is now over. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dar Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rahal Philipose and I will come to you with one business story that is worth understanding and worth your time.

You know, just like Apple hates discounts, HGFC Bank 2 is not a big fan of deals that do not work in. in its favor. In the past, it has cut down the likes of Amazon and Flipcard to size without batting an eyelid. But with Apple, it seems to have made an exception. The exclusive partnership with Apple was amounting to hundreds of crores of rupees. Clearly, the two shared a close relationship. I don't know if you remember, but when Timco came to India last year, he met Shashidhar Jadishin, the managing director and CEO of HDFC Bank. Now, nearly 70% of the 70% of Apple's products in India are bought using some form of affordable financing, including no-cost EMIs, credit cards, or a consumer durable loan from a bunch of lenders. Clearly, this was going well

because Apple hit record sales in FY 2024. And surely, HGFC, as its exclusive partner, had some role to play in this. And for HDFC, the visibility through this partnership was definitely too attractive to ignore. For example, all the iPhone ads come plastered with the financing partner's name on it, HDFC Bank. So, what could possibly be the reason for this deal to fall through? At least three credit card executives aware of HDFC bank's operations told my colleague the Ken's deputy editor, Arundati Ramanathan, that it must have been too expensive for HDFC. So now, the bank's nearly 20 million outstanding cards will not be eligible for cashback offers on Apple. A credit card executive at a large issuer who has studied how Apple works,

said that HDFC was spending about 1.5 to 2 times more on offers for Apple than for other brands. You see, when Apple partnered with HDFC Bank back in 2019, Apple had just about 1% of India's smartphone market share. So it saw the bank's large credit card owner base as potential customers. Apple wanted to capitalize on them to increase its installed base of iPhones. A credit card executive at a bank told us that Apple found a lot of overlap between iPhone users and HDFC bank customers. Now, even though Apple wanted to tap into HDFC's credit card customer base,

it still held the upper hand in the deal because of the brand value that it brings to anyone that it partners with. So it got HGFC to finance most of the cashback. Now, the thing with cashbacks is that they encourage people to make more expensive purchases. A senior credit card executive actually explained it to us. Banks basically rely on these programs to buy spends. And when banks and brands partner both contribute to the cashback offers. With large brands like Amazon or Flipcott, the cashback is equally split. But with Apple, that was. wasn't the case. With it, banks ended up paying far more than 50% of the cashback. Vijay Jasuja, the former SBI Card CEO, told again how Apple drives a very hard bargain.

It used to get banks to spend even the full amount. And based on this, HGFC Bank may have spent about 400 to 500 crore rupees in a year financing Apple's purchases. A senior credit card executive at a large issuer told us this, and two other credit card executives also agreed. An HGFC executive told us that HGFC is too big to bow down to anyone like this. And actually, ending this exclusive deal with Apple was probably a natural step for HDFC anyway, because the bank is already reeling under the costs of a recent merger and has been under pressure to improve its margins. It has even tightened other credit card rewards and is charging more fees on fuel transactions, rent payments, etc.

So what's next then? The second and the third largest credit card issuers of the country, SBI and ICICI Bank, have replaced HDFC Bank to offer cashbacks for Apple's products starting from this month. But they will not offer as high cashbacks as HDFC did. For example, an SBI credit card user buying an iPhone 15 Pro Max will get a $3,000 cashback, half of what HGFC Bank gave last year. But the most important question, though, is are Apple sales getting affected even?

The Ken spoke to a senior executive at a large electronics retail jail. And we learned that this change in offers has actually already led to a slight dip in the sale of Apple products. Nearly 60% of the Apple business in the retailer's stores was on HGFC Bank. This dip in sales, by the way, is despite its... SBI and ICICI say nearly doubling the number of card holders who can now avail these offers. Which is why retailers are hoping that Apple and HDFC will join hands together again. After all, like three more store managers at retail outlets told us,

Apple and HDFC meet each other. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small. sample of our subscriber-undi offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Seam.