August 7, 2019
Apple and Goldman Sachs Group rolled out a virtual credit card on August 6, in a deal designed to enable the iPhone maker to diversify from device sales and to build out the Wall Street bank’s new consumer business.
Apple intends to market the card to iPhone owners, Reuters reports—offering 2% cash back on purchases via the Apple Pay service, no fees, and an app to manage related finances.
On the Goldman Sachs side, the new card is intended to help build the new Marcus by Goldman Sachs consumer brand; which the bank started in 2015 to even out volatile results from businesses, such as trading and investment banking.
On Tuesday, Apple shares were up about 1 percent at $195.30 in trading before the bell. According to the Reuters report, the company said a limited number of the people who had expressed interest in the Apple Card would start receiving sign-up invitations immediately.
“The Apple Card doesn’t play in the same league as premium rewards credit cards like the Chase Sapphire Reserve or AmEx Platinum,” said Sara Rathner, an expert on credit cards at NerdWallet.
She noted, “Those cards charge ultra-high fees, but in return you get some pretty sweet perks: massive sign-up bonuses, annual statement credits, free Global Entry, and a higher point-earning rate for travel expenses.”
Apple will offer an option for a physical card made of titanium, but with no visible number. Instead, the card’s number is stored on a secure chip inside the iPhone, which will generate virtual numbers for online or over-the-phone purchases that require a number.
Apple said purchase information would be stored on the user’s iPhone and that it cannot see the data. Goldman will not be allowed to use data for marketing purposes, even for selling its other products.
Gene Munster, managing partner with Loup Ventures and a longtime Apple watcher, said the card’s adoption is likely to be low in the first year, but it could generate about $1.4 billion of high-margin revenue by 2023.
That would add about 1.8% to Apple’s overall earnings and complement the much larger Apple Pay business for total payments revenue of $5.38 billion by 2023. Apple has roughly 50 million U.S. Apple Pay users now.
But at Apple’s size—$265.6 billion in sales for fiscal 2018—the revenue matters less than the effect on keeping Apple customers tied to its brand, Ben Bajarin, an analyst at Creative Strategies said for the Reuters story.
“If it works, it’s one more thing that causes you to stay deeply loyal and entrenched in the Apple ecosystem, even if something better comes along,” he said.
Research contact: @Reuters