The Apple Card debuted with plenty of fanfare in August 2019. Was it really “the most successful credit card launch ever,” as Goldman Sachs’ CEO claimed? Here’s how the card has fared in its first year.
How is it faring now, just over a year later? Was it really “the most successful credit card launch ever,” as David Solomon, the CEO of card issuer Goldman Sachs, claimed in October 2019?
For starters, the world changed dramatically just a few months later as the COVID-19 pandemic circled the globe. This unforeseen event actually matched up quite well with several of Apple Card’s key features.
The biggest change has been the rise in contactless payments. Apple Card has always been set up to incentivize mobile payments, offering 2% cash back when a cardholder uses Apple Pay and just 1% when he or she pays with the physical card.
The original intention was to appeal to technology lovers and boost Apple Pay, which came out in 2014 but did not gain much traction in its first five years. In 2019, eligible customers only used Apple Pay about 6% of the time, up slightly from 5% in 2015, according to PYMNTS.com (the website defined eligible customers as those who had access to Apple Pay and shopped at stores that accepted it).
The pandemic has greatly accelerated consumers’ appetites for contactless payments, mostly because many are afraid to touch bills, cards and payment terminals due to potential germs. Visa said contactless usage jumped 150% from March to July 2020.
Apple Pay is not the only mobile payment method, of course, but it’s the most popular. It’s also possible to pay by tapping a card itself, although the vast majority of American contactless users prefer to use their phones.
This is a very positive trend for Apple. It gets a small transaction fee anytime a customer uses Apple Pay with any card, and an even bigger boost when that card is Apple Card. Many people established mobile payments habits because of COVID-19, and these could very well become lasting routines.
As much as Apple wants Apple Card to be successful, the broader Apple Pay ecosystem is an even larger opportunity.
See related: Guide to the Apple Card
Cash back and simplicity
Can you imagine if Apple Card focused on travel and then the pandemic hit? Fortunately for Apple, it didn’t make a big bet on any specific industry (especially one that ended up getting devastated by COVID-19).
The card promotes simplicity and awards daily cash back on all purchases. Those are features that resonate with customers right now. Who couldn’t use more cash, right? Particularly when almost half of U.S. households have lost income due to the virus, according to our sister site Bankrate.com.
Simplicity is nice, too. A 2019 CreditCards.com survey found 72% of cardholders would rather use the same card or two for everything rather than mixing several different cards to maximize benefits.
From the beginning, Apple Card proclaimed that it would be a kinder, gentler credit card with no fees. Its financial management tools would actively encourage customers to pay less in interest, and it would be easy to contact customer service via text messages and phone calls.
During the pandemic, Apple Card’s customer assistance program has excelled. Upon request, cardholders have been able to skip payments without interest, potentially for many months in a row – a perk that has stood out in the industry for its generosity and longevity.
See related: How to lower your credit card interest rate
When Apple Card was first announced, its only 3% cash back merchant was Apple itself. That list now includes Apple, Duane Reade, Exxon, Mobil, Nike, Panera Bread, T-Mobile, Uber, Uber Eats and Walgreens.
Still, while Apple’s expanded list of merchants offering 3% cash back is a start, I don’t personally spend a significant amount of money at any of them, and I’d be willing to bet most people would say the same.
Blending the 3% merchants, the 2% Apple Pay rewards and the 1% physical card return, I suspect most Apple Card users end up below 2% on average. That lags the following cards which extend 2% cash back on all purchases: Citi® Double Cash Card (technically 1% when you buy something and 1% when you pay it off), the PayPal Cash Back Mastercard and the Fidelity Rewards Visa Signature card.
There’s also the Alliant Visa Signature Card, which gives 2.5% cash back on up to $10,000 in purchases per billing cycle. Unlike these other cards, it charges an annual fee ($99, which is waived the first year).
Apple Card also experimented with a couple of welcome bonuses over the summer (a $50 bonus after spending $50 at Walgreens, then a $50 bonus after making any Apple Service purchase). Both offers have lapsed, and both were quite modest by credit card sign-up bonus standards, but at least Apple Card has made some strides in this area. It would be great to see higher payouts in the future.
A victim of its own success, in some ways
From day one, I and others have held Apple Card to a higher standard because it’s Apple. It’s a tremendously successful company with a very loyal following, and we expect the absolute best from the brand. Apple and its partner Goldman Sachs also entered the credit card market with a fair amount of bravado.
This also relates to the “slow” Apple Pay growth I mentioned earlier. That 2019 PYMNTS.com report asserted Apple Pay was used in 1% of all retail and food services sales. Most companies would love to have 1% of such a massive market. But given Apple’s size, even Goldman’s own stock analysts projected Apple Card would have an immaterial impact on Apple’s 2020 earnings.
Apple Card’s sweet spot
True, Apple Card does not offer the best rewards or the highest sign-up bonuses we’ve ever seen. It doesn’t have the lowest interest rates, either. But there is certainly a target market for this card.
Apple Card accepts a wider range of credit scores than most credit cards. Besides people who want this card because they love all things Apple – and that’s a significant faction – Apple Card is especially well-suited for a young, tech-savvy audience that’s just starting out with credit.
Apple and Goldman surely hope to hook this group early and grow with them, including adjacent offerings such as phones, entertainment subscriptions, savings accounts, personal loans and peer-to-peer payments. One recent example was when Apple Card added 0% APR installment plans ranging from six to 24 months on a wide variety of Apple products.
Goldman Sachs reported $2 billion in outstanding Apple Card balances and $5 billion in Marcus loans during its Q2 2020 earnings call, both of which were basically unchanged from the prior two quarters. There’s that higher standard again. $7 billion is a lot of money, even if some would point out it’s not growing much.
Right now, we’re in a tough macro environment for lenders, because they’re worried about risk, the economy and jobs. Consumers are spending less and they pared down their overall credit card balances by 10% from February to June 2020, according to the Federal Reserve.
Apple Card may not have changed the credit card world, but it’s a solid entrant in a crowded market. If we remove the lofty brand names for a moment and think about Apple Card as a startup, it’s impressive they’ve made so many strides in one year.
And it really is a startup – it’s Goldman Sachs’ first consumer credit card and Apple’s first major foray into financial services. Through that lens, it has been a productive year indeed.
Have a question about credit cards? E-mail me at email@example.com and I’d be happy to help.