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Apple's credit card push is about keeping iPhone users -- not entering financial services

Key Points
  • Apple's new credit card will help Apple retain current iPhone users.
  • The interface for the card is an iPhone app, and users can't even pay their balance from a web browser or Android phone. 
  • If it can keep Apple fans loyal, Apple Card could end up being a smashing success even if it doesn't contribute a meaningful amount to the company's services revenue or end up being Apple's beachhead in the financial industry.
The back doesn't have any personal information.
Todd Haselton | CNBC

Apple's highest-profile launch this year hasn't been a new phone or tablet — it's been a credit card. Investors and analysts have placed a lot of hope in the card as a high-profile new product in Apple's online services business that management has highlighted as a growth engine for the company.

But the Apple Card could end up being a smashing success even if it doesn't contribute a meaningful amount to the company's services revenue or end up being Apple's beachhead in the financial industry.

Rather, the Apple Card is all about keeping users glued to Apple's most important product: the iPhone.

The Apple Card can only be signed up for on an iPhone. Sure, there's a metal card, but the primary interface for the credit card is on your iPhone — and that includes for paying bills.

If you lose your iPhone, you have to pay your bill from another iOS device, or you can call an Apple support phone number, which will connect you to Goldman Sachs to pay your bill, according to Buzzfeed. There's no web portal on Apple's website.

All this means is that if you have an Apple Card, it's going to be hard to switch to Android, at least before you pay off your balance. The credit card makes the phone much stickier.

And people with iPhones are much more likely to buy AirPods, Apple Watches and apps for their devices, all of which essentially require an iPhone to work properly, and all of which feed back into the cycle — when the person with all those Apple products wants a new phone, they'll buy an iPhone, because it works with all of their Apple products.

Tracking switchers

Apple's leadership used to make a big deal about "switchers." From time to time, Apple CEO Tim Cook would drop nuggets of information in earnings calls or interviews that suggested that Apple was having a lot of success getting people to move from an Android phone to Apple's ecosystem.

Switchers are important to Apple because 81% of Americans own smartphones, according to a Pew study, with similar rates of penetration in other rich markets. Many people in the market for a new smartphone either had an iPhone or Android phone before.

Getting Android users to switch is a big enough priority for Apple that some Apple advertisements last year focused on it. Apple has also released software to help people easily transfer data from an Android phone to a new iPhone.

The other side of that coin is that people who have iPhones might want to buy an Android phone when it's time to upgrade. The latest generation of Android phones are thin, light and powerful, and some are significantly less expensive than the $999 starting price for an iPhone XS.

That's where the card comes in: as a way to reduce iPhone churn.

Lots of financial details about the relationship between Goldman Sachs and Apple aren't public, like if Apple is getting a bounty for sign-ups or whether it gets a cut of transactions. But even if those sums aren't material to Apple, the number of iPhone users who stick in the Apple ecosystem because of their shiny titanium credit card will be.

Goldman Sachs is even approving customers with low credit scores, CNBC previously reported. Even someone with a low FICO score needs to buy a new smartphone eventually.

Apple not a financial company

For what it's worth, Apple's leadership pointed to the card last month as a part of its services business, a catch-all line item including App Store fees, search engine fees from Google, AppleCare warranties, and subscriptions to iCloud and Apple Music.

But although the card is a financial product, Apple's not really transforming into a regulated financial company. Goldman Sachs is providing backend API services to Apple, whose Apple Pay team is in charge of the user interface and product, CNBC previously reported. When you sign up for the card, fine print makes it very clear that the lending and payment aspects are being handled by Goldman Sachs.

This means that Apple can focus on the user experience, which is where its strengths lie. The Apple Card has a lot of nice user interface features. It tracks your spending, charts it, and you can even visualize where you bought things on a map. Apple frames the software as a way to improve your personal finances and as a secure way to pay for things in person and online.

It's not the most groundbreaking stuff, but if you're comfortable with Apple software and hardware, it's nice to have. And in exchange, it will make Apple hardware and software something current iPhone users need to have.

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