Apple has once again shaken up the technology space after unveiling its highly anticipated venture into consumer credit, called Apple Card, under a partnership with Goldman Sachs and Mastercard. The service provides users a sleek digital credit card that offers cash back rewards, no major fees and a level of transparency and control over how they repay purchases and manage their overall finances that few products can match.
"We saw an opportunity to transform another fundamental method of payment, and that's the credit card," Apple CEO Tim Cook told attendees Monday during a presentation of the company's new product lineup. "With the success and momentum of Apple Pay, we've learned a lot about credit cards. While we all need them, there are some things about the credit card experience that could be so much better."
Cook said Apple wanted to develop a payment product that would build on the success of Apple Pay at simplifying applications, while eliminating fees lowering interest rates, offering clear and compelling rewards and increasing security and privacy.
Apple Pay is on track to surpass 10 billion transactions in 2019, and has retail penetration of 70 percent in the U.S. It's is expected to beed support in 40 countries by the end of the year.
Craig Vosburg, Mastercard president for North America, said in a blog that the Apple Card represents the first digital-first payment card from Mastercard.
He said that Mastercard will be integrating Apple technology into its contactless public transit initiative where commuters will be able to buy digitized transit passes and tap-and-go payments in cities like Los Angeles, Boston and Denver.
Market leverage
With Apple partnering with a powerful investment bank such as Goldman Sachs, which has made aggressive moves into the digital banking space with Marcus, a consumer loan and savings program, the question among some observers is whether Apple eventually will be able to leverage its market power so that it disrupts banking the way the company previously disrupted the music industry — and is now attempting to disrupt television and film.
Kalpesh Kalpadia, a consumer credit expert and CEO at Deserve, a fair credit fintech, said the Apple Card is below market for a premium cashback rewards vehicle, noting that Chase Sapphire Reserve, Uber Card and American Express Platinum, offer higher rewards.
He conceded, however, that the Apple Card wins out from a customer service perspective, as it is powered by cloud-based back-end systems versus mainframe FDR/TSYS systems, allowing Apple to offer features like a virtual card, higher-end security, customized payments and other benefits.
Kalpadia noted that the overall success of the card could depend heavily on the flexibility of credit standards by Goldman Sachs.
"To me the jury is still out, as it is not clear who the target audience is beyond Apple fans," he said.
Simple and transparent
Gene Munster and Andrew Murphy, managing partners of venture capital firm Loup Ventures, wrote in a blog yesterday, that Apple Card would be able to deliver a user experience around payments and personal finances that only Apple as a company could make happen.
They said that, unlike Apple Pay, the Apple Card can be used anywhere Mastercard is accepted, and noted that Apple, which is charging no major fees to cardholders, is putting the consumer first, compared with other products in the market.
They wrote that they "have not seen this level of transparency and ease of use around consumer credit and payments before."
Josh Siegel, a banking expert and CEO of fintech company StoneCastle Partners, said he believes Apple could do better and be more creative "than simply resell Marcus's credit to consumers."
"I'm sure they will get some adoption, but I'd be surprised if this card is more successful than any other co-branded credit product."
Banks vulnerable
Odysseas Papadimitriou, CEO of WalletHub, argues that major banks face some potential exposure from the entry of Apple into the credit card space. They point out that the big banks gave Apple Pay a great deal of support early on and agreed to pay Apple a percentage of the interchange fees on purchases made through the service.
"Banks have allowed the fox into the henhouse, so to speak, by helping Apple Pay gain traction in the mobile payments space," Papadimitriou told Mobile Payments Today via email. "Apple Pay simply would not have happened without the support of the big banks.
"If any of them had decided to throw their weight around by threatening to sever ties with any card network that played ball with Apple Pay, (then) Visa and Mastercard would not have allowed the service to get off the ground."
Asked whether Apple got a leg up on rival digital wallets Google Pay and Samsung Pay, he said he wasn't close enough to those agreements to know.
"But the mistake the banks made was engaging in any service that does not provide a level playing field for everyone involved," he said.