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Citigroup was reportedly in advanced negotiations with Apple to become the issuer of Apple Card — Apple's first-ever proprietary credit card that's slated to launch this summer — but backed out due to concerns over its potential profitability, according to CNBC.
Other issuers including Barclays, Synchronous, and JPMorgan Chase also reportedly passed on the deal. Goldman Sachs ultimately became the issuer. Apple Card is a predominately digital card that's spent in Apple Pay — with an associated physical card — and promotes habit formation in the mobile wallet through incentives like tiered rewards and cash back, which can be redeemed daily.
Card profitability is going down in general, and Apple Card's most compelling consumer-facing features actually lower its profitability for issuers.Rising rewards expenses ultimately make credit cards less lucrative for issuers: Return on assets (ROAs) from credit cards are at a five-year low for issuers and are expected to reach 3% in 2019, down from nearly 5% in 2015, according to Mercator. And some of the features that most excite by consumers about Apple Card — like its no-fee structure and lower interest rates — remove or dilute potential profits for issuers. In general, the partnership with Apple has been met with skepticism from industry professionals, who consider it a risky play.
For Apple and Goldman Sachs, however, Apple Card could be instrumental in propelling their respective growth initiatives.
- Apple Card could allow Goldman Sachs to move further into consumer-facing financial services — a goal for the firm. Apple card can escalate Goldman Sachs' push into retail- and consumer-oriented products: Goldman has been enhancing GS Bank, its consumer banking business, through several initiatives including acquiring GE Capital; launching Marcus, its digital-only offering that provides personal loans and an online savings account, which recently reached $35 billion in deposits; acquiring credit card startup Final; and recently acquiring Clarity Money, a personal finance management app (PFM) app, indicating a deeper interest in the credit card and personal finance space.
- For Apple, the card could boost Apple Pay adoption and engagement. Apple Card's compelling value proposition and the fact that it's tied closely to the iPhone could incentivize more regular usage of Apple Pay: 49% of respondents with an iPhone said they were much more likely to make mobile payments if they had Apple Card, according to an on-site survey of Business Insider readers. And even if the card in itself isn't the most lucrative product due to its lack of fees, Apple collects per-transaction fees through Apple Pay, charging card issuers 15 basis points per transactions. If Apple Card incentivizes users to use Apple Pay more often – and helps make its use a daily habit — its ultimately opens up a recurring revenue opportunity for the iPhone maker.
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