My first assignment as a freelance writer, in 1983, was writing the annual report for an Atlanta tech company called Intelligent Systems (NYSEAMERICAN:INS). I forgot all about Leland Strange until today, when I learned that ISC’s CoreCard payment processing software will be at the heart of Apple Inc’s (NASDAQ:AAPL) Apple Card, announced on March 25.
Goldman Sachs (NYSE:GS) licensed CoreCard to back the Apple Card. It’s a small part of the deal, but it illustrates an important point. While most banks completely manage the technology for cards of affiliates, as JPMorgan Chase (NYSE:JPM) does for Costco (NASDAQ:COST) and Citicorp (NYSE:C) does for Amazon (NASDAQ:AMZN), Goldman is letting Apple handle the technology on Apple Card.
This will make all the difference.
Differences between Apple Card, which is badged to Master Card (NYSE:MA) rather than Visa (NYSE:V), and every other bank card will only become apparent this summer when iOS 12.2 is released with a new version of Apple Wallet.
Through Apple Wallet, Apple will be able to identify merchants using maps so workers get full reimbursements when they travel, without paging through complex strings of letters and numbers on bank statements, or even waiting for those statements to arrive. Apple Pay will also automatically track spending across categories, simplifying personal budgeting, and that feature won’t be available to other banks.
But that’s a side issue. Most transactions will happen entirely in the phone, using Near Field Signaling, which Apple got banks and payment technology companies to support on the belief it wouldn’t compete with them.
The Bank of Apple
The Apple Card itself carries no fees but modest rewards, 1% on most purchases, 2% on Apple purchases. All rebates, however, come back daily in the form of Apple Cash, which is integrated with the Apple Pay wallet. Most card rewards come just once a year.
The modest rewards are leading banking analysts to think Apple Card won’t be competitive. They’re missing the fact that Apple will be getting paid for its own new services through the card, giving iPhone owners daily access to the credit card’s features.
They’re also ignoring Apple’s marketing machine, where it’s emphasizing simplicity, transparency and privacy rather than terms and conditions. By giving people a running total of their spending, and daily access to all rebates generated by the card, Apple is trying to grab customers’ entire banking relationship, not just their credit card account.
To its customers, Apple will be their bank, not Goldman Sachs, even though Goldman is running interference on the card for regulators and taking on the credit risks. This is also why the direct rebates on the card are modest. Apple won’t just be looking at the high end of the credit market.
All this will be initially available only in the U.S., where Apple has about 44% of the mobile phone market. But because Apple signed its deal with a global bank, Goldman Sachs is already exploring how it can get the card into other countries.
The Bottom Line on the Apple Card
While Apple spent most of the time at its March 25 event highlighting its competition with Netflix (NASDAQ:NFLX), that’s the financial sizzle. Apple Card is the financial steak.
Apple Card is going to show Cloud Czars like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Amazon just how much power they can have by seizing the technology side of banking relationships.
As our Luke Lango wrote last month, this is a very big deal for Apple stock.
Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family https://www.amazon.com/Reluctant-Detective-Finds-Her-Family-ebook/dp/B07FSRDR4Y/, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in SCHW, AAPL, MSFT and AMZN.