This year marks the five-year anniversary of the Apple Card, prompting me to ponder its future. Given that Apple Card isn’t particularly lucrative, and considering Apple’s ambitions to boost services revenue amid declining hardware sales, it may be beneficial for Apple to consider introducing a premium credit card offering.
Current State of Apple Card
As it stands, Apple Card is a straightforward, no-annual-fee credit card that aims to provide 2% cash back whenever you make a purchase using Apple Pay. Additionally, it features a 3% cash back category for spending at Apple and select partner merchants, encouraging increased spending with Apple. While decent, it lacks the excitement that other credit cards may offer.
Recently, Apple added two partners offering 3% cash back: ChargePoint and Booking.com. The addition of Booking.com is particularly intriguing, as it allows users to earn an extra 2% back in the form of travel credits on the platform.
In its current iteration, the Apple Card has cost Goldman Sachs, Apple’s banking ally, over a billion dollars. Goldman Sachs is anticipated to exit the Apple Card partnership within the next few months due to these losses. With these factors in mind, the prospect of an annual fee version of the Apple Card, particularly one aimed at travel, seems appealing.
Competitive Landscape
A variety of banks dominate the travel credit card market, including Chase, American Express, Citi, and Capital One. By “general-purpose,” I mean that these cards are not exclusively tied to a single airline or hotel chain. However, maximizing value often requires holding multiple cards with these systems. Apple has the potential to streamline the experience, making travel credit cards more attractive to a broader audience.
Consider the commonly used Chase Trifecta, which consists of the Chase Freedom Unlimited, Chase Freedom Flex, and Chase Sapphire Preferred. The first two cards have no annual fees, while the Sapphire Preferred has a $95 fee, allowing all three to operate within the same points ecosystem, enabling users to pool points together and transfer them to any of Chase’s travel partners – including Southwest Airlines and World of Hyatt, among others.
The Chase Freedom Unlimited primarily earns 1.5x points on all purchases, while the Freedom Flex offers 5x points on selected rotating categories (such as gas stations and grocery stores). Sapphire Preferred provides 3x points on dining, and 2x on travel, coupled with various travel insurances, making it the go-to option for travel-related purchases.
‘Apple Card Pro’ Earnings
I believe Apple could successfully produce a well-rounded credit card dedicated to travel, though it would require effort. Establishing partnerships with multiple hotels and airlines will be critical, particularly as banks like Wells Fargo and Capital One have faced challenges in this area, lacking ties with domestic U.S. airlines.
For the Apple travel credit card, maintaining a structure where 1x points are earned with the physical card and 2x points through Apple Pay would be effective, preserving its versatility. Continuing to offer 3x points for Apple purchases is advisable; however, shifting the focus to rewarding 3x points for dining and travel would likely encourage users to view the Apple Card Pro as their primary credit card.
Targeting an annual fee around $299, akin to the Amex Gold card, could be feasible for this product. Apple might entice users with two key benefits: lounge access and exclusive events.
Travel Incentives
Apple could form a partnership with Priority Pass to grant Apple Card “Pro” users access to over 1600 airport lounges worldwide. It would position this card as one of the more economical options for such benefits, likely imposing a cap on visits—perhaps 12 annually—which would still be substantial for most users. Even if customers do not utilize all their visits, Apple (and the issuing bank) would still benefit from the annual fee.
Additionally, Apple could adopt a strategy similar to American Express, offering customers early access to high-demand concert tickets and similar exclusive presale opportunities. This enticing perk could further motivate customers to commit to the higher annual fee associated with the Apple Card Pro.
The idea of a unified travel portal to compare point redemptions across all partners, similarly to the functionality offered by point.me, would also be fascinating. Currently, users experience the inconvenience of searching each partner individually for optimal value; Apple could simplify this process significantly.
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