By Ray Birch
RANCHO CUCAMONGA, Calif.—Analysts are divided on the impact the new Apple Card will have on financial services providers—some saying it’s a turning point in payments, while others call it just another credit card. But most agree credit unions will have to carefully monitor the potentially powerful new entry into the payments space.
And one of the biggest reasons, sources say, is the Apple Card is aimed squarely at credit unions’ most coveted members—Millennials.
As CUToday.info reported, the new Apple Card will debut this summer as part of the Apple Wallet. For those who are approved, there will also be a physical card, as well, with Goldman Sachs the issuing bank and Mastercard the processor. Among the selling points touted by Apple: near instant-issuance of a credit card for those who are approved, with the company saying the card will appear in the user’s Apple Wallet within “minutes.” The card can be used at any place Apple Pay is accepted and will be available across Apple devices. For those locations where Apple Pay is not yet accepted, a titanium card will carry the cardholder’s name laser-etched—but not a card number, CVV, mag stripe, expiration or signature line (which could present problems in online purchases). The physical card will offer 1% cash back, compared to 2% for purchases via Apple Wallet—3% cash back is offered for purchases of Apple products.
Importance of Relevancy
“The Apple Card announcement demonstrates why credit unions must stay relevant in the evolving world of payments,” said Yvonne Stelpflug, vice president, credit products for CO-OP Financial Services. “Apple is actively expanding its payments footprint, bringing its own unique design and user interface to its digital ecosystem. Apple Card is another co-branded card, but it is one much more to be kept an eye on because it is Apple and it comes with the role they play in many people’s lives.”
Stelpflug says once past the power of the brand and the hype around its announcement, Apple Card is not entirely unique.
“In fact, the biggest difference is in the packaging, simplicity and promotion,” she said. “It is also important to note any credit union that offers Apple Pay already has the security value of tokenization—it is an innate feature of the mobile wallet.”
Apple Card does feature some differentiating factors, she pointed out, including P2P social payments by pushing cash back into Apple Pay Cash, instant issuance into the wallet and clearer merchant descriptions to recognize transactions.
“However, there are also a number of unknowns to the announcement, including support, underwriting, approvals and more,” she said.
In terms of what credit unions need to do in response, Stelpflug recommends first continuing to educate members on the value they bring in general—through their card programs, and in the support, security and consistency they provide to their members.
“Credit unions need to keep their card program fresh by making sure it fits member expectations, that it creates loyalty and incentivizes use, and that the credit union offers the digital tools that allow members to manage their finances,” Stelpflug suggested. “In addition, credit unions need to promote to consumers payment instrument options, such as digital wallets. They need to ensure adoption of those payment options is simple and transparent. Finally, credit unions need to have a firm understanding of their portfolio metrics and opportunities.”
As CUToday.info has reported, Richard Crone of Crone Consulting, which specializes in payments, believes Apple Card could change the face of payments.
“Apple Card is disruptive–it is to banking what the iPod was to the music industry, what the iPhone was to wireless carriers and iPads were to the laptop industry, or what Uber is to taxis,” said Crone, who was on hand at the Steve Jobs Theater at Apple’s headquarters when the card was introduced. “This is a seminal moment in consumer credit history. Every financial institution will be forced to compete and collaborate with Apple.”
And one of the biggest reasons for getting behind Apple, he said, is FIs can lose many of their younger consumers if they don’t. Crone reminded the average age of credit union members is approaching 50.
“If you are credit union and you don't support Apple Pay, you better do so before your young members leave when Apple Card is released this summer. Apple will simply will take your members. Apple Card targets Millennials.”
‘A Big Mistake’
WalletHub CEO Odysseas Papadimitriou shared similar feelings.
“The banks made a big mistake by not only supporting Apple Pay, but also paying Apple for every transaction. Now, Apple is pressing their advantage with the Apple Card, and banks will pay a heavy price unless they correct course quickly,” said Papadimitriou. “This new offering is aimed directly at Millennials and could put Apple in the driver’s seat as the payments landscape becomes increasingly digital.”
‘Not’ A Game-Changer
Despite some seeing Apple Card as a significant threat to financial institutions, a number of experts are not buying the Apple “hype.”
“Overall, the Apple Card is a very attractive credit card if you are comfortable using an Apple Watch or Apple Pay. For the rest of the world, it is still a good card but by no means a game changer like some people are saying,” said Bill Hardekopf, CEO of LowCards.com.
He acknowledged however, Apple Card is making its debut with a number of strong features.
“The range of interest rates (13.24% to 24.24%) could make it an attractive card for people with excellent credit. That 13.24% APR is a little over two percentage points lower than the average APR for a new applicant with excellent credit,” Hardekopf said. “The security features of the card are also very positive, and that security with transactions is now a major concern for consumers. Each transaction is made with a one-time dynamic security code, and the transactions can be authenticated with Apple's Touch ID or facial recognition.”
Hardekopf said the card’s rewards are attractive for the “hardcore” Apple user—3% cash back on Apple purchases—and 2% on everyday transactions made with the Apple Watch, Apple Card or on Apple Pay.
“And no fees is always beneficial to the consumer— no annual fee, no foreign transaction fees and no late fees,” he said.
It’s Cool, But…
Hardekopf thinks some may find the physical titanium card "cool," since it is unique in feel and design, and has no name, card number, CVV or expiration date.
“But there are drawbacks,” said Hardekopf. “Only 3% of retail sales in the United States were completed via a mobile wallet last year. That figure will obviously grow in the years to come, but the move to mobile wallets is going much slower than expected. Some of the benefits of the Apple Card are not as strong if you don't use it with Apple Pay or your Apple Watch, so the number of people that truly benefit from this card is fairly limited right now. If you resort to using the physical Apple Card, then your rewards are only 1%, which makes it a fairly weak rewards card.”
Hardekopf noted if consumers lack excellent credit, the card's APR is in line with most other prime cards on the market.
“And one last concern—some people may feel a little uncomfortable having one company, Apple, having so much of their data,” said Hardekopf. “A tremendous amount of your life can already be tracked on your iPhone. If you have this Apple Card, then the company could also have access to a great deal of your payments history.”
‘Count Me as a Skeptic’
PSCU Chief Growth Officer Brian Scott agrees Apple Card is big news, but perhaps not as big as many predict.
“But count me as a skeptic that this will take off like they intend,” he said. “Just because it has the Apple name on it, people think all this is going to put them out of business, but it's not. If you really look at the card itself and the features and benefits, it's not that much different than any other card. And what happens when you want to buy something online and you don’t have a card number or CVV? What happens when the merchant isn’t contactless enabled? I think there are lots of questions here.”
All that said, Scott acknowledged the digital first concept of the card is interesting.
“Especially with the pending mass issuance of contactless cards,” he said. “But I worry for Apple that consumers will still choose their contactless card first.”
Potentially Bad Experiences
Scott believes the card’s features will create some bad payments experiences for consumers, and eventually force Apple to make some adjustments.
“This may end up being much like what you see when non-traditional players, like Venmo, try to do something completely digital. But what did Venmo end up doing—issuing a card,” pointed out Scott. “And what we might see here is Apple, through its relationship with Goldman Sachs, say, ‘You know what, we're going to put a card number on it. And, oh yeah, we're going to have to put a magstripe on it at some point. Apple may come to that conclusion.”
What’s Really Turning Heads
Scott concluded what is really head-turning about the Apple Card is the company behind it and not the payments solution itself.
“If there is a game-changing aspect, it's that a non-traditional player is getting into this financial services space. This card itself is not a game changer,” he said.
Lou Grilli agrees with that latter point, and believes what most credit unions should pay attention to here is the “Bank of Apple.”
“I have been talking about that threat for years and this is a reminder of the importance for credit unions to adopt technology that members demand,” said the AVP of product development and thought leadership at Trellance. “I’m also a fan of metal cards—and this one is laser etched, instead of embossed or just printed, so there’s even more reason to covet the card.”
‘Huge’ Drawback, Biggest Winner
But the “huge” drawback for Grilli, he said is rewards are only 1% when using the physical card.
“And 2% when using my phone or watch to pay, which is pretty meager,” Grilli said. “My Uber card gets me 4% on dining, 3% on travel. Yes, the rewards are paid out daily, but that is no big deal, just sounds cool, and they are paid out as Apple Cash, which cannot be transferred to your bank account. It can only be used for a P2P transaction, or to pay for something that accepts Apple Cash, which right now is iTunes or Apple products. This is a limitation, but given that a new iPhone is around $1,000, using the card might earn you enough rewards in Apple Cash to get you a new phone every two years.”
Grilli said the biggest winner is Goldman Sachs.
“They get access to Apple owners, who statistically tend toward a wealthier, higher-spending demographic and at the same time gain entry into the credit card space—they were already doing well with their online-only banking product, Marcus. So this is a natural extension for Goldman Sachs,” he said.
Hold the Hype
Tim Kolk, principal at TRK Advisors, is another who urges financial institutions not to buy into the Apple marketing.
“All these releases, for any product, all position something as revolutionary regardless of whether it is,” Kolk said. “At the end of the day, this is just another card.”
But there are some interesting, and perhaps troubling things, Kolk sees with the offering.
“The 2%-3% cash back when Apple-Pay is used. That’s rich. It will incent use of device-based transactions. Clearly Apple is looking to expand adoption and incent users to use the Apple Pay technology,” Kolk said. “Is every financial institution that adopts Apple Pay simply training people to use the feature that now Apple and Goldman will use to market them this product? You are kind of damned if you do, damned if you don’t.”
Like many experts, Kolk sees Apple Card as simply something to pay attention to.
“Evolutionary, perhaps, but not revolutionary,” he said. “But we may look back at this as the time when the technology companies found a way—with a cobranding issuing bank—to monetize their technology relationships and create a marketing advantage. You know, competition.”