Is Apple Card enough to blow Apple Pay out of the doldrums?

16 May 2019
Is Apple Card enough to blow Apple Pay out of the doldrums?

By Cormac Duncan,  Head of Product Management, CR2.

Following Apple’s big reveal of the Apple Card, a number of opinion pieces have appeared evaluating this move in terms of Apple making another move into the services industry – in this case into banking – and have concluded that the card will have little appeal beyond apple’s existing customer base and as such is largely irrelevant. In our view, this analysis misses Apple’s true purpose.

Apple Pay has been live for a number of years, and in the core US market roughly 1200 banks are signed up – i.e. about a quarter of the card issuing market. Google Pay is somewhat ahead with about 2000 banks. However, neither scheme can exert much control over how far they advance in this regard. A prerequisite for registering a card with Apple Pay is that the card be tokenised, and it is here that we think Apple Card is aimed.

EMV came late to the US, and large numbers of banks do not currently support tokenisation. As Apple Pay is funded through merchant transactions, it is essential to the commercial proposition of the system that large numbers of transactions be made, and as a result that large numbers of cards be registered. Currently, as noted, it would appear that only about a quarter of Apple customers can register their cards, even though many more may wish to, and fewer than 1% of payments in the US are made using Apple Pay. Apple is now addressing this by providing these customers with a card which they can be guaranteed to be able to use in Apple Pay. Some additional carrots and sticks support this hypothesis: the physical card itself (if issued) is solid metal, and is therefore impossible to use in a contactless environment. This suggests that the convenience of contactless is intended to be only available through Apple Pay.

This also explains why the card is issued by a third party (Goldman Sachs). Apple is prepared to forfeit the value of the revolving credit business in favour of taking a cut of the payments business.

Taken all in all, in our view, this is a canny move by Apple to support the Apple Pay ecosystem by accelerating the take-up of the Apple Pay service, and viewing this as a move into consumer credit will inevitably lead to a premature dismissal of the value of Apple Card.