What the Goldman Sachs-Apple Pay credit card would mean for mobile payments

There’s something a little backwards about a cobranded Apple Pay credit card issued by Goldman Sachs. To most in the U.S., Apple is credited practically with establishing the idea of mobile payments — and heralding beginning of the end of plastic cards — because it was the major brand that got behind it. And Goldman Sachs launched Marcus, its consumer savings and lending business, almost two years ago on the premise  that credit card debt is holding people back from being confident and financially free consumers  -- and that they should take out a Marcus loan to help erase that debt. But that credit card, which is reportedly on its way and scheduled to become available early next year, also makes sense. When Apple Pay first came onto the payments scene it irritated potential issuing bank partners who were unwilling to give up the 0.15 percent of each Apple Pay transaction the Silicon Valley giant would take from them, especially when its competitors, like Samsung Pay, weren’t doing the same. Now, Goldman Sachs, which seemingly woke up one morning and decided to go into consumer banking and is now outrunning most of its competition in products and user experience, has stepped in as Apple’s partner. “Having a credit card that says Apple Pay on it will immediately lead to a massive boost to Apple Pay usage,” said Michael Moeser, a payments analyst at Javelin Strategy. “Backed by Goldman Sachs brings a quality, upmarket partner to a premium brand. Think about it. Aren’t you supposed to load an Apple Pay Card onto your iPhone so you can use it on iTunes or at POS when shopping at Whole Foods or Trader Joe’s? This is a big deal since it will help drive consumer lending profits at Goldman and lift Apple Pay usage.” It also provides an additional revenue stream to Apple outside of selling gadgets, apps and digital streaming. Apple did not respond to requests for comment for this story; Goldman Sachs declined to comment. Apple could use the co-brand relationship to incentivize consumers not just to use the card but then to load it into their Apple Pay wallets and boost transaction volume there, which has shown little and very slow progress despite being a first mover. As of December 2017 only 17 percent of smartphone users indicated they use Apple Pay “every chance they get,” which is actually a significant decrease from March 2015, when 48 percent indicated they were avid Apple Pay users. However, the percentage of smartphone users that indicated they use Apple Pay when they remember they can grew to 44.2 percent in December from 34 percent in March 2015. Incentives could manifest in a number of ways but are likely to be through promotional offers or discounts, said Michelle Evans, an analyst at Euromonitor International. “If Apple’s going to get $100 per cardholder they could instead push it into an incentive where for if you load the card you get something for six month, or have to use the card in Apple Pay for six months to get a certain discount,” she said. “Or they could just give a flat discount and say [customers] will get say 2 percent back on transactions.” Retailers and mobile wallet providers haven’t cracked the code yet on how to drive the loyalty of U.S. consumers, but there are signs they’re working on it. Samsung Pay introduced cash back rewards for its U.S. users earlier this month and Square has quietly been rolling out cash back rewards for its Square Cash users. “Clearly with Apple Pay you could still load your credit card into your mobile wallet and get your points, so it’s more about breaking the habit of pulling out the plastic card,” Evans said. “They captured a lot of attention in 2014 when they announced it but it’s lost some of its luster and some of the air went out of the balloon.” The credit card would be the first from Goldman Sachs and replace Apple’s current Barclaycard Visa product that provides Apple rewards. "Barclay’s doesn’t really seem to be committed to its Apple Rewards card business so it has left Apple with a half-hearted partnership,” Moeser said. “It wants to grow in travel where it has had lots of success since it can leverage a co-brand.” Barclay’s has been trying to grow its card business in the U.S. but has had some mixed results, Moeser said. It won the Jet Blue business in 2016 from Amex and split the American Airlines portfolio with Citi. But it also sold part of its subprime business late last year to Credit Shop. Meanwhile, “Goldman has been aggressive in buying or leading deals to buy credit card portfolios seeing the growth in that business, especially with its high return on equity,” Moeser said. “Goldman has also been pushing into retail lending to offset the slowdown in the trading revenues and sees consumer loans as the answer to future profit growth.”