Does Apple Have A Shot At Success In The Credit Card Market?

by Trefis Team
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Apple (NASDAQ:AAPL) announced a slew of new services at its event on Monday, targeting the entertainment, financial services, news, and video game industries. Although the biggest focus of the event was a new video-subscription service that will carry original programming, the most interesting introduction in our view was the Apple Card, a digital-first credit card that Apple is offering in partnership with Goldman Sachs and Mastercard. In this note, we take a look at what the new card could mean for Apple’s growing services business.

We have created an interactive dashboard analysis on the revenue potential of Apple’s new Credit Card. You can modify our key drivers to arrive at your own revenue estimates for the card, and see more data for Technology Companies here.

Focus On Simplicity, Greater Transparency

While the premium credit card market is crowded and increasingly competitive, Apple appears to be emphasizing on ease of use, lower costs and greater transparency to sell its offering. For instance, the company will not charge late fees or annual fees on the card. Interest rates are also likely to be lower than rivals, coming in at between 13.24% to 24.24% based on a user’s creditworthiness. Apple is also offering tighter integration with the iPhone’s Wallet app, showing users how much they spend, where they spend it and the various repayment options and how much interest they could end up paying if they don’t settle their card bills in full. Customer service is also simplified via Apple’s messages application.

Rewards Program 

Apple’s rewards program is also quite straightforward, offering cash that is credited back on a daily basis (unlike the typical monthly interval for most cards), although the rewards are far from the best in the industry. The card will offer 2% cash back on payments made via the iPhones on ApplePay. While this is roughly in line with what most cards offer, U.S. Bank has a card that offers 3% cash back on ApplePay. In-store swipes with the companion physical card will provide a 1% rewards rate, which is well below other cards. This could be an issue, as Apple Pay has lower acceptance compared to swipe machines (Apple Pay covered 65% of U.S. retail locations as of early 2019), meaning that customers could be getting rewards that are below the industry standard under most scenarios. The cash back will stand at 3% for spends on Apple products and services.

Apple Should Be Able To Quickly Sign Up Users, But Loyalty Could Be An Issue

Customer acquisition costs are typically very high in the credit card industry, with major banks spending heavily on advertising while offering large sign-up bonuses and promotions on new cards to garner customers. However, Apple could find it easier and cheaper to sign up customers, given that the card is targeted squarely at iPhone users, who are also typically more affluent. Apple has roughly 190 million active iPhone users in the U.S., and the simple and almost instant sign-up process via the iPhone Wallet app could entice users to at least try out the new offering. However, stickiness could be a challenge. Credit card penetration in the U.S. is already high, with about 7 in 10 Americans estimated to be holding at least one credit card, and iPhone users are more likely to have other cards of their own – many of which could have higher rewards rates and benefits. Users could avail some of the security and convenience features of the Apple Card by just using their existing cards with Apple Pay, while continuing to avail their existing rewards programs which are likely more lucrative. (related: What’s The Revenue Potential For Apple’s Proposed Credit Card With Goldman?)

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