Breakingviews - Apple Card puts customer first, Goldman second

Tim Cook, CEO of Apple, speaks during an Apple special event at the Steve Jobs Theater in Cupertino, California, U.S., March 25, 2019. REUTERS/Stephen Lam

NEW YORK (Reuters Breakingviews) - Apple’s new credit card is a remarkable thing. Not because of the cash back offered to users – they can get similar deals elsewhere. And not because it’s made of titanium and has no numbers printed on it. The unusual thing is that in order to muscle in on a competitive industry, issuer Goldman Sachs has tossed aside many of the features that make the card business lucrative for banks in the first place.

Credit-card issuers make a return after tax of around 2.6 percent of loans outstanding, according to Accenture, more than the biggest banks make overall. Three things that contribute to those returns are interest on unpaid balances, fees for things like late payment, and complexity. Competing offerings are hard to compare cleanly, because of a dizzying array of rates and rewards, including hard-to-value freebies like air miles.

Goldman has eschewed most of that. There are no fees on the Apple Card – at all. The rewards are simple: Rather than points, users get cash back when they buy stuff, with the highest payback coming on purchases of Apple products. The Wall Street firm has also denied itself the chance to offset its generosity with high interest charges – the card’s rates will be “among the lowest in the industry.”

In practice, Apple Card will help consumers keep the actual rates they pay even lower, advising them how much to repay and when, in order to minimize cost. They even get their cash back daily, rather than waiting until the end of the month. By being so transparent, the $69 billion Goldman is putting the customer first, and itself second.

Why do this? Goldman presumably believes it can keep its returns healthy by identifying customers who won’t default on their loans, in part through smart use of data. Also Chief Executive David Solomon will, at a swoop, put the firm on the map in an industry where just four companies – Citigroup, JPMorgan, Bank of America and Capital One – hold half of all U.S. card balances.

Even at half the rate of return rivals get, Goldman’s credit-card business would still beat the group’s overall yield on assets, which was 1.1 percent last year. To score a landmark deal, it can afford to let Apple – and its customers – dictate the terms.


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