Apple Appeals to Privacy Concerns with New Credit Card

On Tuesday (August 6), Apple (NASDAQ:AAPL) released its new credit card, called the Apple Card, which comes with colorful features, cash back offerings and the promise of privacy.

“Created by Apple, not a bank” is its slogan, emphasizing that the card, which has both digital and physical iterations, is geared at looking out for the financial wellbeing of its users.

The Apple Card’s annual percentage rate (APR) is low at a range of 12.99 to 23.99 percent, and it will not charge annual fees, cash advance fees, late fees or over-limit fees.

The card is currently only available on a preview offer to select US residents who have an Apple iPhone with two factor authentication. A broad rollout in the country will follow later this month.

Branded primarily as a digital credit card, the Apple Card works with the Apple Pay function available on customers’ iPhones and Apple Watches. Customers’ financial data will be stored in the Apple Wallet app.

As mentioned, Apple is offering daily cash back features to users. Apple product purchases receive 3 percent cash back, while Apple Pay purchases generate 2 percent cash back and purchases made with the physical card generate 1 percent cash back.

Apple’s daily cash back feature stands in contrast to its competitors, such as Citigroup (NYSE:C) and American Express (NYSE:AXP), which offer cash back on a monthly or annual basis.

The card was launched with Goldman Sachs (NYSE:GS) as its issuing bank and MasterCard (NYSE:MA) as its global payments network. This is Goldman Sachs’ first venture into a consumer lending partnership.

The Apple Card is devoid of any credit card number, CVV or tap feature. Instead, it highlights the company’s Face ID and Touch ID features, which are embedded into Apple Pay. Any stolen iPhone is prevented from compromising its Apple Card capabilities through its biometric features.

Apple maintains that it will not be able to see its customers’ data. As privacy remains a primary concern for individuals today, with tech giants facing countless lawsuits and record fines, that claim will likely face future scrutiny.

The company has also reassured customers that Goldman Sachs will not market its products through this partnership, or sell any data to third parties. According to Apple, “Of course, Goldman Sachs will use your data to operate Apple Card. But they will never share or sell your data to third parties for marketing or advertising.”

The Apple Card is projected to generate US$1.4 billion in revenue by 2023, Gene Munster, managing partner at Loup Ventures, told Reuters. Interestingly, some market watchers believe that making money may not be its main effect.

“If it works, it’s one more thing that causes you to stay deeply loyal and entrenched in the Apple ecosystem, even if something better comes along,” Ben Bajarin, an analyst at Creative Strategies, told the news outlet. He believes that the revenue stream from the card will be secondary to the brand’s effect.

So far it’s uncertain if Apple’s cash back feature will give its competitors a run for their money. For example, the Amazon (NASDAQ:AMZN) Prime Rewards Visa offers 5 percent cash back at Whole Foods and has no annual fee. Its APR varies between 16.49 and 24.49 percent.

That being said, Macworld notes that the most comparable cash back credit cards on the market are the Chase Freedom Unlimited, Citi Double Cash and CapitalOne Quicksilver cards. These cards offer 1.5 percent, 1.5 percent and 2 percent in cash back, all without annual fees. The Apple Card offers competitive APRs to these three competitors, undercutting all by at least 2 percent.

In addition, its reward features could carry major implications. When JPMorgan (NYSE:JPM) released its Chase Sapphire Reserve card, it reported US$200 million in losses from reward redemptions.

Shares of Apple opened at US$196.31 on Tuesday and closed at US$197, a 0.29 percent uptick.

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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.