The new Apple credit card may be less profitable than you think – The Fool Motley

There are many things to love about Appleof (NASDAQ: AAPL) foray into credit cards, the Apple card. Unveiled yesterday and launched this summer, Apple Card removes many embarrassing fees and penalties for consumers of nickel and ten cents, offers an intuitive interface for managing expenses and payment bills, and includes many features that provide privacy and improved security. Apple is associated with Goldman Sachs (NYSE: GS) to offer the card, the investment bank has developed in recent years in consumer credit.

It also offers a simple reward system that allows you to credit cash back every day. However, the benefits that most users will eventually realize will likely be disappointing compared to competitive offers.

Goldman disappointed by Goldman

Apple Card offers three different levels of cash back: 3% on Apple purchases, 2% on Apple Pay contactless purchases and 1% on physical card purchases. The average repayment rate will depend on the composition of these categories by the user.

Analysts at Goldman Sachs have published a research note (via CNBC) estimating that the map will eventually make it closer to 1% for most users. "Even though Apple Pay is becoming more available, we still expect a high percentage of transactions with a 1% return level (with the physical card), so we expect the typical consumer to perceive that the monetary return rate is correct but not great, "wrote Rod Hall analysts.

At the event, the CEO, Tim Cook, said that the acceptance of Apple Pay by merchants in the United States had reached 70%. Merchant acceptance is higher in other parts of the world, but the Apple Card only launches initially in the United States.

In addition, Loup Ventures estimated last month that it has about 46 million Apple Pay users in the United States while adoption continues to grow. However, these are just users who have activated Apple Pay, and the estimates say nothing about the actual behavior of use or purchase. Changing the behavior of consumers at checkout is a different issue, since contactless payments offer a little more convenience than card payments.

It's also worth noting that the biggest mainstream purchase of an average Apple client is probably an iPhone, since average upgrade cycles for iPads and Macs tend to be much longer in general. But the majority of US iPhones are purchased from carriers and billed monthly in installments. These purchases would not benefit from the 3% reward rate, which applies only to purchases made directly by Apple (including services). This highest level would only apply to a small proportion of the annual expenses of an average household of a client, assuming you do not buy from a household. iPad every week.

Old payment habits die hard

If the average consumer can expect a cash back of almost 1%, the Apple card will not be competitive compared to other comparable cards offering a discount of 1.5% without annual fees. Apple does not seem to be interested in competition in the highly competitive area of ​​premium credit cards, where financial heavyweights like JPMorgan Chase and American Express dominate with offers like sapphire reserve and platinum card, respectively.

A few years ago, Apple would have collected about 15 basis points of payment volumes processed with Apple Pay. The company is able to earn this unprecedented reduction by offering increased security and authentication. Apple Pay uses tokenization that enhances security and biometric authentication technologies Apple's Face ID and Touch ID are far more powerful than the signature on the dotted line. Apple Pay contactless transactions are considered "card transactions", a category that is less risky for merchants and card issuers and results in lower processing fees for the merchant.

A the Wall Street newspaper According to a report last year, Apple could double its take of about 30 basis points for the new Apple card. This could explain why Apple Pay contactless payments are more profitable, as technology titan more effectively monetizes these transactions. The reward structure clearly attempts to encourage more Apple Pay contactless payments, which could in turn contribute to the growth of the service sector as Apple succeeds in getting consumers to change their payment methods.