It isn't every day -- or every year, even -- that a high-profile credit card business comes up for grabs. Yet that's the situation now with Apple's (AAPL 0.96%) namesake Apple Card. The tech giant is jettisoning the product's current issuer, a change that also might result in a switch of the network operator facilitating the card's transactions.
The stakes in this battle could be high. A great many Apple Card holders are also Apple device owners, meaning that at first blush, anyway, they comprise a relatively affluent crowd. There's also the renown and prestige of linking up with a top name in the consumer tech world.
Consumer finance ambitions
With its usual hype and fanfare, Apple launched Apple Card in early 2019. The company loves being considered an envelope-pushing innovator, so it touted its rectangle as a "new kind of credit card" that could be used and managed entirely through the Wallet app packed into its devices.
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Key Data Points
The issuer behind the card was, and remains for now, Goldman Sachs (GS 1.63%). At the time Goldman was pushing hard into consumer finance, most notably starting a next-generation bank called Marcus. The company never effectively made the swing from its wheelhouse of investment banking to bread-and-butter financial services, and it began transitioning out of Marcus in 2022.
Apple surely saw the writing on the wall, and in November 2023 it proposed that Goldman exit from the partnership, according to a contemporary Wall Street Journal article. Several months later, the Journal reported that U.S. banking king JPMorgan Chase was in talks with Apple to be the card's new issuer.
The financial newspaper later wrote that others, including Capital One and Synchrony Financial, were also in discussions with the tech company to be the new issuer.
Two distinct jobs
For the most part in the credit card world, the entities that issue the credit and the ones that process the transactions are separate. Apple Card's network operator since inception has been Mastercard.
If the issuer can be replaced, then so can the network operator. No doubt with that principal in mind, Mastercard's archrival, Visa, has offered around $100 million to Apple to be the facilitator of Apple Card transactions -- again according to Journal reporting, in this case from early April of this year.
American Express also seems to be in the running for Apple's business. The interesting wrinkle is that, unlike pure processors Visa and Mastercard, AmEx also acts as the issuer of its credit. If Apple decides to go this route for the card, then, it would likely have a single entity doing both jobs.
Pluses and minuses
So what are shareholders of the companies involved to make of the current succession drama?
The Apple Card is indisputably a significant gig. According to a figure Apple published in early 2024, there were 12 million users of the card. These folks generated $1 billion in earnings on the product's cashback program the previous year.
But that might look better on the outside than from within. An estimate from venture capital firm Better Tomorrow Ventures based on those 2024 numbers calculated annual Apple Card spend of $67 billion, equating to roughly $5,500 per user.
It contrasted this with the Delta Air Lines SkyMiles cards underpinned by AmEx. These produced $250 billion worth of spend on a narrower base of 7.5 million cards in circulation. Granted, SkyMiles is a much older product than Apple Card, but still those figures are illuminating.
In its eagerness to become a consumer finance company, Goldman accepted various perks and limitations unusual in the credit card field to be the Apple Card's issuer. The always-switched-on cashback feature was onerous enough, if not unusual, as were other special requirements such as one stipulating the creditor provide 0% financing for Apple product purchases through the card.
Ultimately, while we can't made an educated guess on current information about how the issuer and/or network operator story is going to play out, we can keep a principle or two firmly in mind. What's key is how the relationship between the Apple Card partners will change, if at all. Apple might have to relax its requirements if it wants a robust and mutually beneficial partnership or partnerships.
Who has the upper hand?
Visa is a powerhouse in the networking segment and has much leverage on that basis alone. On the issuer side, we can say the same for JPMorgan Chase, a mighty bank that, according to research organization Nilson Report, in 2024 took the crown as the largest U.S. credit card issuer by payment volume -- of over $1.3 trillion, for the curious.
It feels to me that Apple, despite its fame and the admirably wide user base of its card, isn't necessarily dealing from a position of strength here. Yes, that apparent $100 million or so up-front payment offer from Visa is generous. However, that company has a vested interest in maintaining its No. 1 operator status.
Apple, meanwhile, is clearly determined to push deeper into consumer finance. To give the company its due, it has done a decent job of it, with its Apple Pay becoming a common means of transaction -- by Apple product users, anyway. Given that, plus the fact that the Goldman arrangement eventually tanked, it might well be amenable to offering conciliatory terms to potential new partners.
So anyone invested in any of the potential suitors, plus, of course Apple, needs to pay less attention to the status of the horse race and more to the potential shape of any new deal. This will be the tell of which company or companies will ultimately walk away with the biggest prizes, in this most high-profile credit card partnership change of the moment.
