At a well-publicized event earlier this week, Apple (NASDAQ:AAPL) introduced an expansion of its already successful Apple Pay program with the introduction of a credit card dubbed Apple Card. Apple detailed a number of features designed to make the card stand out from its peers, including a simple application, no fees, a lower interest rate, a clear and compelling rewards program, and of course, a focus on the privacy and security of the transactions.
Unlike most cards, the Apple Card has no card number, CVV security code, expiration date, or signature on the card, "making it more secure than any other physical credit card" according to Apple. Users will be able to find the aforementioned information in the digital copy of the card in the Wallet app.
While it might seem like a trivial addition, the Apple Card could make an already successful foray into digital payments even better.
Removing customer pain points
Apple will use machine learning and Apple Maps to replace the cryptic merchant names that appear on many credit card statements with names and locations that users will actually recognize. The app also provides weekly and monthly spending summaries arranged by categories.
The rewards program was another area that Apple sought to improve. Every time users make a payment with Apple Pay using their iPhone or Apple Watch, they receive 2% cash back, and that rises to 3% for purchases directly from Apple -- including at Apple retail stores, the App Store, or for Apple services. All other purchases get 1% cash back, and the total amount of cash back is unlimited.
The Daily Cash feature allows rewards to accumulate on a daily basis, and those cash rewards are stored in an Apple Cash card in the Wallet app and can be used the same day. This allows the accrued rewards to be spent on purchases, used to pay down the card balance, or sent to friends using the Messages app.
Apple also added tools that help users better understand the cost of interest when not paying their balance in full. Customers can use the app to determine how a specified monthly payment will affect the balance and the total amount of interest paid.
The company partnered with Goldman Sachs and Mastercard, which will act as issuing bank and global payments network provider, respectively. Apple said that Goldman would never sell or share data with third parties for marketing or advertising.
Apple Card users will benefit from some high-end security features. The company created a unique architecture -- the Secure Element -- consisting of a special security chip used by Apple Pay, which contains the card's information. Each time a payment is made, it creates a one-time-use dynamic security code that protects your card from unauthorized use. Apple also said it won't track where the user shopped, what they bought, or how much they paid. That information is all contained locally on the iPhone.
Check out the latest earnings call transcript for Apple.
Expanding from an already growing base
Apple Pay is already enjoying a reasonable degree of success, and the Apple Card will only expand on that. During the conference call to discuss Apple's first-quarter results, CEO Tim Cook said the digital-payment method reached more than 1.8 billion transactions over the holiday quarter -- twice the volume achieved during the same period a year earlier. That number is sure to soar, as Apple Pay is currently used in 27 markets around the world and will be available in more than 40 countries by the end of 2019. It's also on track to process more than 10 billion transactions this year.
Retail acceptance of Apple Pay now exceeds 70% of merchants in the U.S., and penetration is even higher in many other countries. Apple Pay is accepted at 80% of merchants in Canada, 85% in the U.K., and 99% in Australia. The number of new countries this year alone will ratchet up the use of Apple Pay.
This gives Apple a firm foundation from which to launch the Apple Card. The company will earn interest on balances, as well as interchange or "swipe" fees from merchants. Additionally, Apple's costs to offer the credit card will likely be less than those of similar merchants.
The use of the Maps feature and recognizable merchant names -- along with the ability to text questions directly to Apple -- will cut down on the number of customer-service interactions, helping keep costs lower. Finally, Apple won't have the typical marketing spend to attract customers for its offering, as the company has nearly 1 billion iPhone users as an existing market for the card.
The Apple Card doesn't have to be a game changer in order to be a big success for the iPhone maker. It's off to a good start.