Five years after its ballyhooed debut, Apple Pay is still struggling to take off. Apple Inc is betting its swanky new credit card can change that.
Apple Pay represents less than 2 percent of volume on major networks such as Visa and Mastercard, Sanford C. Bernstein & Co analyst Harshita Rawat said.
Consumers lament that it can be hard to tell which merchants accept mobile payments and store clerks might be unable to help complete a transaction.
“It’s just easier to use card payments,” Rawat said. “Mobile payments need to evolve their value proposition to get consumers to switch from their plastic card payments. This new offering Apple Card is a step toward that, but it needs to evolve even further.”
Apple on Monday said that it had joined forces with Goldman Sachs Group Inc to launch the Apple Card for iPhones.
The move comes as mobile payments are poised to get a boost from efforts in the US to encourage retailers to accept tap-to-pay cards, which use the same near-field communication technology as Apple Pay.
Large banks such as JPMorgan Chase & Co and Bank of America Corp have pledged to introduce more so-called contactless cards in the US, prompting larger merchants and transit systems around the US to accept them.
Apple’s card does include a more traditional cash-back rewards program, including 2 percent on Apple Pay purchases and 3 percent at Apple retail locations and its App Store. That could entice some of the 1.4 billion active Apple device users to take the card.
Users typically replace iPhones — which sell at an average of US$800 — about every three years, and spend an average of US$88 a year on apps.
Social media billed the new card as an Apple “flex,” a slang word millennials use for a product or service that allows them to show off to peers.
“It’s yet another step forward for mobile payments,” said John Grund, a managing director in the payments practice at consulting firm Accenture PLC. “The size of that step is to be determined.”
Apple did not disclose what percentage of merchant fees it would collect from Apple Card transactions.
For Apple Pay transactions, analysts have estimated that the technology giant receives half a cent on in-store debit purchases and 15 basis points on credit cards.
With traditional cobrand credit cards, retailers often negotiate lower swipe fees, as well as revenue and loss-sharing agreements based on the success of the program.
Apple could also receive some of the interest generated from the program, as well as referral fees, if consumers start using other services from Goldman Sachs as a result of the Apple Card.
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