A Titanium Card Won’t Guarantee Apple’s Credit Card Success

Following an initial announcement in May 2018, Apple and Goldman Sachs confirmed their intention to launch a jointly-branded credit card. According to an article in Forbes:

Apple's new credit card will have Goldman Sachs as their banking partner, and will be known as the Apple Card. The Apple Card is designed for the iPhone and it integrates directly with the hardware and software on the phone for seamless functionality. The card will live in the Apple Wallet and will be accepted wherever Apple Pay is accepted. Apple Card customers will also receive a titanium laser etched card to be used at physical merchants. The card will have no late fees, no annual fees, no international fees, or over-limit fees. They will strive to offer the lowest interest rates in the industry, although they left out specific details about the interest rates themselves. The Apple Card earns 2% cash back on all ApplePay transactions, 1% cash back on all transactions if you use the physical Apple Card, and 3% cash back on all purchases made at Apple."

Note that this isn't Apple's first foray into the credit card business, as it currently offers a Barclaycards-issued card. How will the new card fare in the market?

And It's One, Two, Three Strikes You're Out in the Old Card Game

Three strikes against the new Apple/Goldman Sachs card:

1) The rewards aren't good enough. Generally speaking, successful credit cards address one of three consumer segments: Those looking for rewards, those looking for a low interest rate, or those choosing a card based on an affinity.

It could be argued that the Apple/GS card is an affinity play, appealing to Apple fanboys (and girls). But if that were the case, then Apple's Barclaycard would be the card of choice for many of them. I haven't seen any numbers reflecting the uptake of that card. The cynic in me says that means it hasn't been very successful.

As with other retailers' card offerings, consumers making Apple purchases are good candidates for the cards. But increasingly, they have other options to finance their purchases, like Apple's POS financing option through Citizens Bank.

So, if it's not an affinity card, the new Apple/GS card will compete in the rewards space. Good luck with that. There are a ton of 2% cash back cards already on the market, and a slew that do a whole lot better than that.

2) Money management features won't attract new cardholders. According to the WSJ article:

Engineers are working on new features for the Apple Wallet app that would encourage users to pay down their credit card debt and manage their balances. There also could be notifications based on analysis of cardholders’ spending patterns, alerting them for example if they paid more than usual for groceries one week."

This isn't anything new. And worse, few consumers use or care about these features. I'd love to see the research Apple did that makes it think these features will sway consumers' choice of cards--but I bet there isn't any.

3) Apple doesn't have strong enough data and analytics capabilities. For all the data that Apple amasses through its consumer devices, the company is not strong at marketing analytics. Apple is not a data-driven company. Google and Facebook are data-driven companies. Apple is a technology-driven company.

Want to know why Apple has become such an advocate for data privacy recently? It's the only way it can fight back against Amazon, Facebook, and Google. If you ascribe a more altruistic reason to the company's privacy-related proclamations, you're deceiving yourself.

Unfortunately for Apple, the credit card business is a data-driven business. The best issuers have great analytics teams and capabilities. Apple doesn't.

Goldman Sachs may bring more analytics skills to the table, but they've never issued a credit card before.

Is Goldman Sachs the Key to Success for the Card?

Goldman Sachs may not have issued a credit card to date, but they had never offered a high-yield savings account before Marcus, and they're up to what, $35 billion in deposits? According to a WSJ article:

Goldman executives hope to eventually offer Marcus loans, wealth-management services and other products to Apple customers. Without bricks-and-mortar branches, the bank spends heavily on direct mail and paid referrals to bring in customers."

The challenge--or question--here is to what extent can Goldman help bring on those Apple customers in the first place? Richard Crone, CEO of Crone Consulting, hypothesized in a LinkedIn post:

What if Goldman enters behind the Apple brand as a white label service the way Discover did for Apple Pay Cash? The primary benefit to Goldman is an instant issuance platform for activating new customers in all purchase venues, online and offline, with artificial intelligence-driven customized credit options using the Apple Pay user interface."

If Goldman brings enough marketing heft and analytics capabilities to the table--as it has with the existing Marcus offerings--then the Apple/GS credit card might acquire enough customers to sustain a business.

If it's Apple up at bat on their own, it's strike three for the card.

Ron Shevlin
Director of Research
Cornerstone Advisors