Personal Finance

Apple Is Getting Deeper Into Credit Cards in Order to Boost Apple Pay

Person using Apple Pay for public transit

Apple (NASDAQ: AAPL) has long had a partnership with Barclays for a co-branded credit card as a financing option, offering rewards that can be redeemed at Apple. It sounds like that relationship may be coming to an end soon, with Apple partnering with another financial institution for a new credit card offering: Goldman Sachs (NYSE: GS) . The investment bank has been pushing deeper into the consumer market in recent years, but has yet to offer a credit card.

The two companies are now reportedly teaming up.

Person using Apple Pay for public transit

Image source: Apple.

Partnering with Goldman

The Wall Street Journal reports that the Mac maker and Goldman Sachs are about to launch a new co-branded credit card that would replace the current Barclays card. The news comes just a few months after the WSJ reported that Goldman Sachs was in talks with Apple to help arrange some type of in-store financing for Apple products.

The card is expected to bear Apple Pay branding, a brand that Apple has been trying to build up lately, including through the recent launch of Apple Pay Cash , a mobile peer-to-peer (P2P) payment service integrated directly into iMessage. Apple Pay Cash also functions as a debit card stored within a user's Wallet app.

Apple Pay Cash on iPhone

Image source: Apple.

While Apple often publicly touts the success of Apple Pay, overall adoption has not met internal expectations, according to the report. For example, CEO Tim Cook said in February that Apple Pay is now accepted at over half of all retail locations in the U.S., which he called "an important milestone in the U.S." But merchant acceptance doesn't necessarily translate into user adoption. Cook also noted that purchase volume had tripled year over year in the fourth quarter, but investors don't know what base that's coming off and Apple does not disclose payment volumes in absolute terms.

By launching a credit card co-branded with Apple Pay -- which would undoubtedly include a physical card as well as a digital, tokenized version  stored in the Wallet app --  the Mac maker is hoping to boost adoption of the service. Certain details of the partnership aren't finalized yet, such as the structure of the rewards program, but the card is expected to launch in early 2019.

It's still all about services

The broader context is Apple's yearslong push to grow its services business. As a revenue generator, Apple Pay may pale in comparison next to offerings like Apple Music or iCloud storage. Apple collects 15 basis points from each transaction, unlike rival services, so its monetization relies entirely on transaction volumes.

Payments and financial services in general are also fundamentally different businesses, ones that Apple is fairly new to. One likely reason Apple Pay adoption is lagging is fairly obvious: Mobile payments have never presented a meaningful improvement in convenience compared to traditional cards. It's easier, but not by much, while established consumer behaviors are hard to change. This has been a long-standing criticism of all mobile payment services, and it still rings true today.

In launching a physical Apple Pay credit card with the financial backing of Goldman, Apple could bridge the digital divide. Hopefully the rewards program will be good.

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