Apple Card is here. Beyond the headlines, what’s in the (ahem) cards for backers that include the tech giant and Goldman Sachs? According to an analysis by Nomura, perhaps not all that much, at least near term. But a grander strategy (think debit!) may be at work.
The Apple Card looms, with a rollout that began last week through Goldman Sachs, and according to at least one analysis, the card might underwhelm consumers, lead to muted results (at least at the outset) for its tech and banking backers, and for Goldman, even lead to losses, depending on the economic climate.
In a report issued Wednesday by Nomura analysts, the overreaching takeaway is that there is indeed potential for disruption, but the longer term is, well, very long term, according to Investor’s Business Daily.
Per the report: “The card may take years to reach our threshold for materiality, or above $1 billion in operating profit.”
Goldman, for its part, may see impact from loan losses should the economy falter, according to Nomura on CNBC.
Much has been made of the fact that the credit card has no fees and a relatively low interest rate, which in turn may pressure results.
Nomura estimates a price tag of $350 per consumer in terms of acquisition costs, which means breakeven is several years away. That comes amid an economic environment where the bank will see impact from net charge offs, or NCOs beyond 8 percent. Loss rates, the analysis said, may settle somewhere between that seen with Discover Financial Services and Capital One.
“As a new entrant, Goldman Sachs does not have the historical data or experience that lenders obtain when underwriting through a credit cycle,” the report reads.
It adds: “Experienced financial industry investors tend to cringe whenever they hear a new entrant announce that they have created a better mousetrap for underwriting consumer credit. As a new entrant, GS does not have the historical data or experience that lenders obtain when underwriting through a credit cycle.”
This is not to say that the news is all bad. As the analysts wrote, the Apple Card’s “elegance should entice some consumers to make it their payment vehicle of choice.” Perhaps this is scant praise; consider the fact that the same analysis states that “its fairly common rewards scheme may limit its ability to scale to the mass market.”
In terms of scale, Nomura noted that the company may find traction among users of Apple products already on offer. The firm estimates that the spending and borrowing activity of each 5 percent increase in penetration of the installed base of iPhone users would give volumes equal to 1 percent of payment volumes and 2 percent of credit card balances in the United States.
Beyond credit, according to the analysis, Apple Debit may dawn, and put other bank revenue streams at risk. Debit activity generated $15 billion of revenues for the banking industry last year. Most users will likely pay the balances of their Apple Cards through their bank accounts, said Nomura, so Goldman Sachs will obtain bank account information.
This may mean that Apple eventually offers a decoupled debit card.
The addition of bank account information, said Nomura, to pay balances owed on the Apple Card could lead to increased usage of Apple Cash and increased willingness among users to complete P2P payments via their devices instead of using Zelle, Venmo or Square Cash.
For now, no big splash seems in the offing, especially for the tech giant.
The impact may perhaps be muted, as Nomura estimates that Apple Card may not be noticeably accretive to Apple on its own.
“Ultimately, however, we do not believe the Apple Card’s full roster of features and perks compare favorably with rival credit cards, at least for now. We believe the Apple Card is best understood as yet another tool in AAPL’s digital wallet toolkit, alongside the current services Apple Wallet, Apple Pay, and Apple Cash. We suspect that Apple is not finished with its slate of financial services; adding debit could be one such avenue,” the analysts wrote.