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Apple's new Goldman Sachs credit card could be part of deeper push into finance

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Apple’s new Apple Pay-enabled credit card, a joint venture with Goldman Sachs. Photo: Apple

Industry insiders think Apple’s (AAPL) new credit card could signal the beginning of a deeper push into finance as the tech giant bets big on services, rather than hardware.

Apple launched its first ever credit card on Monday in partnership with Goldman Sachs (GS) and MasterCard (MA). The card, which will launch in the US this summer, offers 2% cashback and 3% cashback if you buy Apple products using Apple Pay.

“If it’s a success they will get into full consumer banking (chequing accounts, savings, and loans) and that will be the tectonic shift,” predicted Micheal Kent, CEO and founder of UK money transfer startup Azimo.

Kent’s view chimed with other analysts and industry insiders who see financial services as a key part of Apple CEO Tim Cook’s new revenue growth strategy.

‘Services, not devices, hold the key’

Apple made its first major foray into consumer finance with the launch of Apple Pay in 2014, which allowed people to store and use their debit cards virtually on their iPhones. The product has been a success, with over 1.8 billion Apple Pay transactions in the final three months of last year.

While Apple Pay was largely a technical innovation, the launch of the new Apple Card — as the credit card will be called — represents a push into a much more highly regulated area and signals Apple could have ambitions in more traditional finance.

Apple’s introduction of the Apple Card is a bold move,” Shachar Bialick, the CEO and founder of fintech card startup Curve, told Yahoo Finance UK. “It presents for the first time Apple’s intentions to be front of wallet on Apple Pay, directly competing with other issuers on Apple Pay.”

The push into the front of the wallet is part of Cook’s broader strategy shift to providing services, financial or otherwise, alongside hardware. Apple wants to be the trusted gateway through which you access everything from your money to news, TV, and games.

“Services, not devices, hold the key to Apple revenue and profitability growth over the next five years,” Morgan Stanley (MS) analyst Katy L. Huberty and her team said in a note on Tuesday.

“It’s clear Apple recognizes the power of a 1.4B, and growing, active device installed base, as well as the trusted, secure, ease of use characteristics of its integrated hardware, software, and services platform.”

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Pushing into new areas like finance has the potential to not only generate new revenue opportunities, but also to make Apple’s products more sticky by including more and more of its customer’s lives within the Apple universe.

“For Apple, there’s something neat here,” Simon Taylor, a partner at 11:FS, said of the new credit card. “They’ve done both improve the experience and offer material rewards.”

Taylor said an obvious next step into financial services might be to include point of sale loans in Apple Stores, allowing users to borrow with Apple credit when they buy Apple products.

‘A foothold over the far longer view’

Apple CEO Tim Cook introduces Apple Card during a launch event at Apple headquarters in Cupertino, California. Photo: Noah Berger/AFP/Getty Images

However, others are more sceptical about Apple’s first foray into consumer credit.

“There is little prospect the joint venture will take much share from the dominant US players JPMorgan, Capital One, Bank of America, and Citigroup even over a decade,” said Ken Odeluga, market analyst with City Index.

Credit card experts in the US who spoke to Yahoo Finance in the wake of the launch were unimpressed by the terms offered by the card. NerdWallet’s credit card expert Sara Rathner said the core cashback offer was “mediocre” compared to the competition.

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I’m unconvinced people will switch, or should I say it will be a slow process,” said Iqbal Gandam, the UK CEO of trading platform eToro. “Incentives are great, but would I want to hold my banking transactions with Apple? Probably not.”

The new Apple Card also lacks a contactless chip, a shortcoming that many people pointed out on Twitter could be a detractor to potential customers. The rationale appears to be encouraging customers to use Apple Pay instead.

Analysts at Nomura (9716.T) said the card was “not compelling.” Likewise, Wells Fargo (WFC) said in a note on Tuesday, “We do not see a meaningful near-term negative impact to existing issuers in the $1T+ market.”

But, the Wells Fargo team said, “It does, however, represent a longer-term threat. Apple and GS represent strong brands and many merchants can now accept Apple Pay due to EMV point of sale terminal upgrades. This card will likely increase use of Apple Pay.”

“For Apple, the true value of the launch is the foothold it creates over the far longer view,” Odeluga said. “For Goldman Sachs, the push is a modest piece in its full-blown move into Main Street with Marcus.”

‘Google and Facebook bound to accelerate plans’

Apple CEO Tim Cook introduces Apple Card during a launch event at Apple headquarters in Cupertino, California. Photo: Noah Berger/AFP/Getty Images

Whether or not Apple makes an immediate splash in credit, the impact a company of its size entering a new market has shouldn’t be underestimated.

“The biggest thing I noticed was the pressure that Apple’s presence and size can exude on suppliers in this value chain,” David Brear, the founder and CEO of 11:FS, said.

“The fact there was no Mastercard logo on the card for me is a sign that the most valuable company on the planet has a very significant ability to throw its weight around in an industry that it’s not really even in.”

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Apple’s launch could also spur other tech giants to start throwing their weight around in finance.

“Google and Facebook are bound to accelerate plans on back of Apple jumping into consumer financial services,” Azimo CEO Kent said. “Google have just rationalised all global payments under Google Pay brand and new leadership in Mountain View so expect more news there soon.”

So should traditional financial services brands be quaking in their boots?

The global rise of fintech companies that overlay user-friendly interfaces on financial services infrastructure have sparked fears that banks could be reduced to “dumb pipes” that operate more like utilities and compete only on price.

Financial services firms might also remember nervously the experience of the music industry, which was disrupted by Apple’s iTunes store in the early 2000s and has struggled to recover in revenue terms.

The opportunity ahead of us is to move banking to the cloud, as much as Spotify moved CDs to the cloud,” Curve CEO Bialick said. “Apple eyes this opportunity alongside companies like Alipay, Wechat, and Curve.”

“I don’t think this is the end of the finance industry,” 11:FS’s Taylor said. “But it’s another cut in the death by 1,000 cuts of consumer finance that relies on legacy infrastructure.”


Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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