Apple’s March 25th keynote event announced forthcoming offerings to further build out Apple’s Services line—video media streaming, print media subscriptions, gaming, and more. Most interesting to us at Glenbrook (surprise!) was Apple’s co-branded credit card launched in partnership with Goldman Sachs and Mastercard. The Apple Card, to be released in the summer, integrates consumer controls, personal financial management, interest expense management tools, instant cashback rewards, and advanced privacy and security measures into the iOS ecosystem. While the Apple Card doesn’t introduce a wholly new category of card, it neatly packages together a new combination of features we’ve seen before in card products —and integrates these features into its iPhone-native Wallet app.
Apple’s painstaking attention to a well thought out user experience and sleek packaging has now been applied to the familiar credit card. We think the new card will serve to increase consumer uptake of Apple Pay, and perhaps further elevate consumer expectations around Apple’s leading value propositions in payments: security and data privacy.
This card’s incentives and app-native features are structured to drive contactless payments
For years, the U.S.’s slow adoption of contactless payments has been a topic of discussion in the payments community. The Apple Card has been designed to increase the count of mobile payment transactions. The Apple Card offers tiered rewards—2% cash back on Apple Pay transactions, compared to 1% back via its physical card, a card that does not support contactless payments, but is outfitted with both an EMV chip and a magnetic stripe for in-person transactions with merchants that do not accept contactless payments.
Notably, cash back will be instantly credited to the Apple Pay Cash virtual debit card in the iPhone Wallet app, allowing consumers to spend directly from the card at a merchant, make P2P transfers, pay off their Apple Card statements, or transfer funds to their bank accounts. As cash back is loaded onto the Apple Pay Cash virtual debit card, any purchases made by the Apple Pay Cash card will be contactless Apple Pay transactions. Those purchases will likely generate income for Apple as the co-brand partner for the Apple Pay Cash card issued by Green Dot Bank. Green Dot has to be thrilled given that the Apple Pay Cash program was previously confined to Messages users.
Apple’s interest payment planning tool represents a modernized, consumer-empowering lending feature
The Apple Card introduces a tool novel among credit cards, designed to encourage users to minimize their card interest payments. Based in the iPhone wallet app, the Apple Card’s financial management system will offer visualization of payments due. Rather than encouraging a minimum payment amount be paid, an interactive wheel allows a user to view the interest payment that would be charged for paying off amounts between the minimum payment and balance. The Wallet app will send push notifications as a payment due date approaches.
Such transparency around the cost of revolving a balance echoes the installment movement, planning credit card bill payments around dates that work for the cardholder and resulting in reductions in the interest paid. For example, cardholders could align payment dates with their paydays, possibly making payments to their Apple Card bill more frequently than once a month. Additionally, Apple states that it wants to “make it easier for cardholders to pay down their balance,” and charges no “nuisance fees”—there are no annual, cash-advance, over-limit, or late penalties associated with this card. The emphasis on empowering cardholders to avoid paying interest, and eschewing otherwise standard card fees, positions the Apple Card as a partner in the consumer’s financial health. The selection of Goldman Sachs as the card issuer/lender plays into this positioning, as Goldman Sachs has also been seeking ways to disrupt traditional consumer financial services.
The Apple Card offers layers of payment security measures to offer a highly protected card
The Apple Card may be most notable for its commitment to payment security. It intends to offer the most secure card product in the market without adding friction, the usual price of increased security. Its unique security features include:
- Biometric authentication and EMV compliance protect contactless and in-app transactions made with Apple Pay
- While the card may still need to be dipped or swiped at times, no card number or security code appears on the physical card, which may at times be handled by checkout clerks, waiters, or other prying eyes. A static account number is encoded on the chip and magnetic stripe, but is unknown to both the cardholder and the merchant
- For browser-based transactions, the Wallet app generates a persistent tokenized account number that the cardholder can input manually into checkout pages. The security code that accompanies this virtual account number is updated dynamically by the Wallet app, and cardholders can generate a new virtual card number whenever they wish
- Cardholders will be able to contact Support securely via the iMessage app.
Apple Business Chat is a service powered by Siri that will serve prompts to a cardholder to assist with any support issues. We expect that this will serve as the basis of a secure voice commerce system that is likely to grow based on the Siri, Apple Card, and Apple Pay Cash products.
The Apple Wallet app is the natural place to manage the personal financial data generated as the card is used. In the case of lost or stolen plastic, it will be easy and straightforward for a customer to cancel the card and have it replaced at the touch of a button, in-app.
Apple doubles down on its positioning as offering a private ecosystem for consumers to conduct their digital—and now financial—lives
In addition to security, the Apple Card is most differentiated by its emphasis on privacy. Apple is anticipating that privacy concerns will be top-of-mind for consumers going forward and framing a payment product to complement the promise of privacy—baked into its hardware and services—may prompt consumers to more carefully consider privacy in payments.
Apple has stipulated that information normally available to card providers will be opaque to Apple. It will not know where the customer has shopped, what items were purchased, or the amounts paid, as such data is processed locally in the iOS Wallet app and not on Apple servers. Goldman Sachs has likewise committed to protect cardholders’ payment data, and not share it with internal or external marketers. The third Apple Card partner, Mastercard, released its Principles of Digital Identity in March, in alignment with Apple’s card announcement. The Principles outline Mastercard’s responsibilities with regard to customers’ “digital identities” and enumerates 10 broad principles related to preserving customers’ control and ownership over their data and privacy, while alluding to the open banking principle of customer choice in selecting providers with access to user data.[1] Mastercard envisions how consumers will retain control over their digital presence—both to leverage already known data in order to reduce friction and streamline authentication while protecting other consumer data.
The Apple Card Signals Increased Attention to Digital Transaction Accounts, Over Traditional Plastic
Apple puts forth specifications for a thoughtful credit card that is fully competitive with the industry in most ways and distinctive by a few measures. In scrutinizing this payment product, the Apple Card reminds us that payment accounts are evolving as physical cards become a less prominent feature of transaction accounts. Apple is launching this card with the primary objective of driving Apple Pay transactions; the management of this card takes place on a user’s iPhone. The Apple Card will reward Apple Pay payments more generously than physical card transactions, and load cash back rewards instantly onto the virtual Apple Pay Cash debit card.
The Apple Card amounts to the sort of experience we’ve come to expect from Apple. This is a tightly controlled payment product that keeps the consumer top of mind, offers sleek personal financial management and data management tools all on the iPhone’s OS, and intends to secure and authenticate payments in the most frictionless manner possible.
[1] https://www.mastercard.us/content/dam/mccom/en-us/issuers/digital-identity/digital-identity-restoring-trust-in-a-digital-world-final-share-corrected.pdf
