On the list of Apple’s little-known businesses, the Apple Card must feature near the top.
The tech company’s venture into the world of financial services began in August of last year. In partnership with Goldman Sachs, Apple’s credit card was “designed to help customers lead a healthier financial life”. Or to encourage card users to buy Apple products and services, of course.
How the card helps Apple make money
On its website, the company has made it clear that “there are absolutely no fees associated with Apple Card: no annual, late, international or over-the-limit fees”. Of course, interest charges will be applied to the balances carried forward. But these payments are usually kept by the partnering bank that issues the credit card loans.
Without interest charges and card fees, left for Apple to collect are the merchant fees. Think of the Visa and MasterCard models: every time that one of their cards is swiped, the payment processor takes a cut. These “swipe fees” can add up to 2.5% of the transaction amount, depending on the type of card and transaction. At least some of these fees should be kept by Apple – plus whatever else might have been previously negotiated among the Apple Card partners.
Don't forget, however, that the company would need some of these revenues to cover the costs of offering up to 3% in cash back to cardholders.
All about the ecosystem
Why would Apple, an extraordinarily successful tech device and services company, care to break into the financial services industry?
By now, the reader must have noticed one theme: Apple has been on a mission to integrate its products and services as much as possible. By doing so, the company can offer “one-stop shop” solutions to its users that range from music and video streaming services to payment processing. At the center of it all sits an iPhone, iPad or another of Apple’s big-ticket gadgets.
Yes: in the end, it is all about the ecosystem. In fact, I suspect that the Apple Card might only be minimally accretive to the company’s revenues in the foreseeable future, and maybe not at all to earnings. But when cardholders can pocket 3% cash back for acquiring a new iPhone or buying music on iTunes with their Apple Cards, they will probably be more encouraged to transact.
This is probably how the Apple Card can provide the most value to the Cupertino company.