What's The Revenue Potential For Apple's Proposed Credit Card With Goldman?
The Wall Street Journal reported recently that Apple ( AAPL ) and Goldman Sachs were working together to offer a new credit card. The card will apparently be tightly integrated with a native iPhone app and could lead to a broader partnership between the two companies to offer a range of financial services to iPhone users, as their core businesses slow down. In this note, we estimate the potential revenues that Apple could garner from the new service.
Why Apple And Goldman Are Partnering To Offer A Credit Card
Apple has been focusing on its services business to drive growth as shipments of its flagship iPhone have been on the decline. The financial services space appears attractive to the company, as it could leverage its base of affluent iPhone users, its tech expertise and massive software and device ecosystem to deliver financial services. As the financial industry is highly regulated, partnering with an experienced player like Goldman would be helpful. Goldman also stands to benefit from the partnership; while the investment banking behemoth launched its own online consumer bank in 2016, it doesn’t have a branch network or an established brand in the retail market, and this is where Apple’s vast base of iPhone users could be helpful.
The credit card market is highly competitive, with major banks spending heavily on advertising while offering record levels of sign-up bonuses and promotions on new cards to hook customers. However, Apple and Goldman are apparently not looking to participate in this model, focusing on tight integration between the card and the iPhone application, while offering cash back on spending (estimated at 2% for regular spending and potentially more on Apple products).
What’s The Revenue Potential For Apple?
Apple has a total of 900 million active iPhone users, with an estimated 21% estimated to be in the U.S. This translates into about 190 million U.S. iPhone users. If 5% of these iPhone users sign up for the offering by 2020, it could translate into a card base of about 9.5 million. The metric could grow to about 15% of iPhone users by 2022, or about 30 million card accounts. For perspective, Loup Ventures estimated that 24% of U.S. iPhone users have used Apple Pay.
Card companies make much of their money from two major sources – namely interest on outstanding balances and credit card related fees such as the interchange fee charged to merchants and annual fees charged to cardholders.
Estimating Fee Revenue: American Express – which targets the highest-spending U.S. customers – saw cardmembers spend an average of about $20,840 in 2018. However, we expect the Apple/Goldman card to start smaller, with spends starting at about $5000 per account in 2020, rising to about $10,000 by 2022. This could imply purchase volumes of $300 billion by 2020. If we assume that the average fee income as a percentage of purchase volume stands at 1% (interchange and other fees), this would translate into revenues of about $3 billion by 2022.
Estimating Net Interest Revenue: While the average credit card debt for American households stands at $5,700 (across multiple cards), we assume that the average balance would be much lower for the new card, coming in at about $1,200 by 2022, considering the comparatively strong financial standing of many Apple customers. For a base of 30 million customers by 2022, this would translate into an outstanding balance of about $35 billion by 2022. Assuming a net interest margin of about 7% on this balance (roughly in line with Capital One) this would translate to net interest revenues of about $2.5 billion by 2022.
Total Revenues and Apple’s Share: Adding up the fee and interest revenues, we estimate that total revenues of the card partnership could stand at about $1 billion in 2020, and over $5 billion by 2022. While it’s not clear what terms Apple have Goldman have worked out, it will likely be some kind of revenue-sharing agreement with Goldman, like Apple has with developers and digital service providers on the App Store. If we assume that Apple takes a 20% cut on these revenues, it could garner about $1.1 billion in revenues from the partnership by 2022. While this is a drop in the bucket in relation to Apple’s overall revenues of over $250 billion, the two companies could eventually expand into other lucrative areas, such as wealth management and potentially checking accounts operated via the iPhone. Further, it could make Apple’s device ecosystem even stickier, which is important given the heightened competition in the smartphone market.
What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs
For CFOs and Finance Teams | Product, R&D, and Marketing Teams
Go to Appearance > Customize > Subscribe Pop-up to set this up.
Wealth Empire Newsletter
Register now for free updates and alerts
Note: I have the ability to revoke this permission at any time and ask for the removal of my personal data collected by contacting us or simply clicking Unsubscribe.