Announced earlier this year, Apple's (NASDAQ:AAPL) big push into credit cards arrives this month. Some users (myself included) have started to get early invitations ahead of a broader rollout, with reviews beginning to hit the internet in recent days. The tech titan's angle is multipronged: The company wants to bolster adoption of Apple Pay by offering greater rewards for using the mobile payment service and help consumers better manage their finances, all while further entrenching iPhone users and strengthening customer loyalty.
Whether Apple can accomplish the latter remains to be seen.
Hang on tight to your iPhone
In no uncertain terms, the Apple Card completely relies on the iPhone. Users apply for the credit card directly on their iPhones and also make payments through the Wallet app. In fact, there's currently no other way to pay the monthly bill if you lose your iPhone, according to BuzzFeed News. Presumably, Apple will soon rectify that silly oversight.
Business Insider argues that the Apple Card is a "brilliant move by Apple to keep people shackled to the iPhone," but whether the card helps customer loyalty will depend on a variety of factors. How much money do you spend at Apple in a typical year, including subscription-based services? Do merchants you frequent accept Apple Pay? How savvy are you in navigating and maximizing credit card reward programs? Do you need the help in responsibly managing credit card payments to minimize or avoid interest expenses?
Apple Card's rewards program isn't actually all that competitive. Apple purchases (including subscriptions and digital purchases) get 3% cash back, Apple Pay transactions earn 2% cash back, and all other purchases made with the physical titanium card receive a mere 1% cash back. Goldman Sachs (NYSE:GS) analysts estimated earlier this year that most users would earn close to 1% cash back on average based on the expected spending mix for the typical consumer (Goldman is also the issuing bank).
Most people don't buy a dozen iPhones per year or subscribe to twice that many paid subscriptions through the App Store. The titanium card immediately conveys Apple's minimalist design aesthetic, but does anyone really care enough to sacrifice more lucrative rewards programs?
Goldman isn't expected to make much money on the offering, due in part to a lack of fees combined with Apple's software nudging people to pay down their balances. However, the companies may be appealing to a wider range of consumers that may be less credit-worthy. CNBC recently reported that Goldman, which determines approvals, is accepting subprime consumers (those with FICO stores under 660). That may help Goldman earn more in interest if those consumers carry monthly balances (but also increases the risk of default).
It's highly unlikely that many consumers will ultimately find the Apple Card to be truly indispensable, in which case Apple's foray into the intensely competitive credit card industry won't move the needle when it comes to customer retention.