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Apple Is Letting People Apply for Its Credit Card. Can Its Rewards Spur New iPhone Sales?

August 6, 2019, 1:51 PM UTC

It’s official: Apple’s credit card is coming this month. On the Apple website, consumers can be notified when they can apply for the Apple Card, a process that happens entirely on their iPhone. But that would take place on their existing handset. Will the Apple Card’s rewards entice its customers to upgrade to a new iPhone 11 when it (presumably) comes out in September?

In an investor call on last week, CEO Tim Cook announced that the Apple Card will be made to consumers this month. And it’s likely not a coincidence that the credit card’s release date is coming right before the company’s biggest announcement each year: a new iPhone.

When first announced back in March, Apple revealed its credit card would provide 2% back when used with Apple Pay and 1% whenever the physical, titanium, numberless card is used. The Apple Card would also be without late fees, annual fees or foreign transaction fees. But Apple saved its biggest perks for cardholders who are loyal customers, offering 3% back to those who buy software, media, and products directly from the company.

“Apple will surely promote the 3% with the new iPhone,” says Bob O’Donnell, an analyst at TECHnalysis Research. “The new features on the next iPhone are widely expected to be ho-hum, so they will need to provide other incentives.”

As it has done in the past, Apple is expected to unveil the next iPhone at a September event. Some rumors have pointed to the so-called “iPhone 11” to release without certain features like a 5G chip. Many expect, however, the rumored iPhone 11 line of devices to contain three new phones, including a model with three rear cameras.

Regardless of what’s inside the new iPhone, one detail is clear: Apple has streamlined its process to apply for the Apple Card. A prospective cardholder only needs to open the iOS Wallet app, tap through a few pages, and—if their application is accepted—the card is immediately available to use on their iPhone.

As consumers have run out of reasons to upgrade to a new phone each year, sales of Apple’s iPhone have plateaued. In the 2018’s fourth quarter, Apple sold 64.5 million iPhones—down from 73.2 million year-over-year. Meanwhile, competition is on the rise, with companies like Huawei having multiple quarters where it passed Apple in number of phone shipments. Preempting the bad press, in 2016, Apple even stopped sharing opening week sales numbers for the iPhone.

Smartphone sales woes aren’t unique to Apple. Hardware makers like Samsung have felt a similar sting, with profits pivoting downward due to a slump in wireless sales. The release of the Samsung Galaxy Fold was expected to help the company’s financials, but broken phones and delays largely left the company with a heap of bad press.

With consumer buying fewer phones across the board, Apple’s credit card play reveals a larger strategy. “It’s worth considering the big picture, which for Apple is driving demand for its entire ecosystem,” says Graham Tanaka of Tanaka Capital Management. “Many focus on the iPhone but Apple’s services offering is growing very rapidly.”

During the Apple credit card’s announcement, the company also announced a news subscription service, gaming subscription service and TV streaming subscription service. Tanaka expects the Apple credit card to help expand Apple’s ecosystem, even when buyers aren’t purchasing an Apple product. “You can expect consumers with the card to bug stores to add Apple Pay so they can get that 2% back,” he says.

Apple Card could bring an uptick to the company’s hardware business too, says Tanaka. “Consumers may not delay subscribing to Apple Music [as they wait for Apple Card to become available], but I imagine many buyers putting off on buying an expensive Mac or iPhone so they can get 3% back,” he says. Using the current iPhone lineup as a guide, Apple Card users would get 3% cash back on their purchases at Apple using the Apple Pay app, saving shoppers between $22.48 (for the least expensive iPhone XR) and $43.47 (for the most expensive iPhone XS). It’s possible that these rewards will entice shoppers to snag other items, like Apple’s increasingly popular AirPods.

Computer sales aside, Tanaka believes the Apple Card will offer the company something more lucrative than a one-time phone purchase: recurring revenue from customers fully bought into the Apple ecosystem. “The biggest question for those considering the card is, ‘Do you want your entire life tied to Apple’s ecosystem?,'” says Tanaka. “I think for many people, the answer is ‘Yes.'”

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