OBSERVATIONS FROM THE FINTECH SNARK TANK
According to the Wall Street Journal, this spring Apple and Goldman Sachs will start issuing a:
Joint credit card paired with new iPhone features that will help users manage their money. Cardholders will earn cash back of about 2% on most purchases and potentially more on Apple gadgets and services."
I'm on record saying that the card will fail because: 1) The rewards aren't good enough; 2) Money management features won't attract cardholders; and 3) Apple doesn't have strong data and analytics capabilities.
Based on the results of a new consumer survey,* I may have to eat my words.
If consumers do what they say they're going to do, credit card issuers are about to get hit with an Apple Card tsunami.
Who Has a Credit Card?
If Millennials hate credit cards, they have a funny way of showing it--70% of Young Millennials (20 to 29 years old) and 73% of Older Millennials (30 to 38 years old) have at least one credit card. That percentage goes up to 77% of Gen Xers and 85% of Boomers.
Rewards cards are prevalent across all generations. About three-quarters of credit card-toting Young Millennials get rewards. Among Older Millennials and Gen Xers, eight in 10 have rewards credit cards. And 85% of Boomers with credit cards get rewards on at least one of their cards.
More Than One in Five Millennials Intend to Get the Apple Card
When Apple launches its new card, 24% of Young Millennials and 22% of Older Millennials intend to apply for it. Of these potential applicants, a little more than half of the Young Millennials and two-thirds of the Older Millennials said they will make the Apple Card their primary credit card.
Interest in the card drops off sharply among the older generations: 14% of Gen Xers and 7% of Boomers intend to apply for the card. That might seem minuscule compared to the Millennial numbers, but it still comes out to more than 14 million new Apple Cardholders.
Which Issuers Will Get Hit the Hardest?
If the Millennials who said they'll apply for the Apple Card actually do (and are approved), Apple will have the second-highest market share among Young Millennials behind Capital One, and third-highest market share among Older Millennials, tied with American Express behind Capital One and Bank of America.
Wells Fargo and US Bank would be the hardest hit: Roughly a quarter of their current credit cardholders intend to apply for an Apple Card. And about half of them intend to make the Apple Card their primary spending card--which could make a big dent in the two banks' credit card revenues.
American Express and Bank of America could see a big hit too, with about one-fifth of their cardholders expecting to get the new Apple Card--and again, more than half of those cardholders saying the Apple Card will be their top-of-wallet card.
Will The Tsunami Bring Apple Good Customers?
Of the consumers who expect to apply for an Apple Card, about one in five don't currently have any credit cards--the Apple Card would be their first. The majority (54%) of these potential first-time credit cardholders are sub-prime consumers with a self-reported credit score below 680.
In addition, among the expected Apple Card applicants who currently have a credit card, a quarter of them have a credit score below 680.
With credit card charge-offs at a seven-year high, this might not be a good time for Apple to issue credit cards to subprime consumers. But no need to worry, I'm sure that Goldman Sachs knows what it's doing.
Will The Tsunami Really Hit That Hard?
Despite the consumer survey data, there are three reasons why I'm not backing down on my assertion that the card won't live up to expectations:
- After years of doing consumer research, here's what I've learned: Consumers never do what they say they're going to do in a survey. People often tell market researchers that they would be willing to pay for added security features or pay more for a "better experience." But they don't.
- Of the survey respondents who intend to open the Apple Card, 42% don't have an Apple smartphone. Considering the extent to which the Apple Card's application, money management features, and higher rewards rate are integrated into the iPhone experience, I'm not betting that many non-Apple smartphone owners will be early adopters of the new credit card.
- It's hard to believe that many rewards cardholders will abandon the rewards they've accumulated on their current cards and shift their payment behavior to a new card.
But credit card issuers might want to be prepared for the tsunami--just in case.
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*The survey, conducted by Cornerstone Advisors, included 2,506 US consumers between the ages of 21 and 73 (i.e., Millennials, Gen Xers, and Baby Boomers) with a checking account and a smartphone. That's not everybody of course--but a pretty good representation of existing and potential credit cardholders.
