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Todd Haselton | CNBC
Apple's highest profile launch this year has not been a new phone or tablet – it's been a credit card. Investors and analysts have put 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 service revenue or ends up becoming Apple's beachhead in the financial industry.
Apple, rather, is about keeping users glued to Apple's most important product: the iPhone. [1
If you lose your iPhone, you must pay the bill from another iOS device, or you can call an Apple support phone number, which connects you to Goldman Sachs to pay the bill, according to Buzzfeed. There is no web portal on Apple's website.
All this means that if you have an Apple card, it will be difficult to switch to Android, at least before you pay 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 require an iPhone to function properly and all flow back into the cycle – when the person with all these Apple products want a new phone, they want to buy an iPhone because it works with all their Apple products.
Apple's management used to do a good deal about "switchers." From time to time, Apple CEO Tim Cook would drop nails with information in revenue conversations or interviews suggesting that Apple was a big success and 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 penetration rates in other rich markets. Many people in the market for a new smartphone had either an iPhone or Android phone before.
Getting Android users switching is a big enough priority for Apple that some Apple ads last year focused on it. Apple has also released software to help people transfer data from an Android phone to a new iPhone.
The other side of the coin is that people who have iPhones may want to buy an Android phone when it's time to upgrade. The latest generation of Android phones are thin, lightweight 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 the iPhone roll.
Many financial details about the relationship between Goldman Sachs and Apple are not public, such as whether Apple gets a signup for signups or whether it gets a cut of transactions. But even though these sums are not important to Apple, the number of iPhone users who stay in the Apple ecosystem will because of the shiny titan credit card.
Goldman Sachs even approves low credit score customers, CNBC reported earlier. Even someone with a low FICO score will eventually have to buy a new smartphone.
Apple Not a Financial Company
For what it's worth, Apple's management pointed to the card last month as part of its service business, a catch-all line item including App Store fees, Google search engine fees, AppleCare guarantees and subscription to iCloud and Apple Music.
But even though the card is a financial product, Apple doesn't really turn into a regulated financial company. Goldman Sachs provides backend API services to Apple, whose Apple Pay team is responsible for the user interface and product, CNBC previously stated. When you sign up for the card, the lending and payment aspects are handled by Goldman Sachs in small print.
This means that Apple can focus on the user experience, and that's where the strengths lie. The Apple card has many nice user interface features. It tracks your expenses, maps 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 personally and online.
It's not the most groundbreaking thing, but if you're comfortable with Apple software and hardware, it's fine to have. And in exchange, it will make Apple hardware and software current iPhone users must have.