Apple Credit Card: Gimmick or Game-Changer?

In March 2019, Apple revealed it had teamed up with Goldman Sachs and Mastercard to launch its own credit card. CEO Tim Cook described it as “the most significant change in the credit card experience in 50 years”. The card will be exclusive to iPhone users and will be built into the Apple wallet app. Users will have the option of a sleek titanium physical card too. Apple boasts that the card will not have any associated fees. This means no late, annual or foreign transaction fees, although variable APRs will apply, ranging from 13.24% to 24.24%. Customers will have the opportunity to receive cash back on Apple purchases. Card users will gain up to three per cent back on purchases from a physical Apple store, its website, iTunes or App Store. Each time a purchase is made using Apple Pay, customers will receive two per cent back. The card is expected to be released in the US in the summer.

Why credit cards?

Apple has recognised that it must diversify its income streams to retain high levels of profitability. The sales growth of the iPhone has been gradually declining. In q4 2018, Apple suffered its worst quarterly sales growth in over 3 years, posting growth of a meagre 0.1%[1]. Apple is now turning towards services to bolster its balance sheets.

It has now doubled down on its services, revealing Apple TV Plus, a new streaming service, Apple News Plus and Apple Arcade. The credit card is just one of many measures Apple is now taking to deal with a saturated smartphone and device market.

Will it be a game changer?

The Apple credit card certainly has the potential to successful and Apple will seek to replicate the success of Apple Pay.  There are currently over 380 million Apple pay users, with an estimated 43% of Apple users have enabled Apple pay[2]. With the Apple credit card due to be integrated into the wallet system, Apple have made it as easy as possible to set up. The incentives of cashback on all Apple purchases is likely to entice existing customers.  Although it is not ground-breaking, the seamless integration with the Apple wallet makes the Apple credit card relatively future proof. Contactless payments have surged in the past few years with over 51% of UK instore payments being contactless[3].  With more people than ever paying using their phones, the option of a physical and virtual payment facility sets Apple up well for a changing market.

Some experts argue however, that the credit card market is equally as saturated, and the incentives alone may not be enough to entice new customers to get another credit card. Many argue that primarily die-hard Apple Pay users will opt to sign up for the card.

Taking all into account, it is unlikely that the Apple credit card will be a game changer. There is not any significant industry hype around the service and rightfully so.  Apple isn’t offering anything new. The cash-back incentives are relatively modest, and Apple are not offering any major rewards along with the service. The credit card could, however, provide Apple with increased and sustainable revenue from its core customer base. In conjunction with other services, the credit card may help Apple make the shift from primarily a device maker to a service provider.

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[1] https://www.macrumors.com/2019/02/21/iphone-sales-worst-quarterly-decline-for-3-years/

[2] Loup Ventures – https://loupventures.com/apple-pay-adoption-continues-to-climb/

[3] https://www.mobiletransaction.org/contactless-payments-uk/ 00000006

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