Apple (AAPL) has begun offering its new credit card to consumers, but the Apple Card has a long way to go to be a material business driver for the company, a Wall Street firm said Wednesday.
XIn a report, Nomura Instinet said early reviews for the card are positive, but it will take years for the business to scale. The brokerage reiterated its neutral rating on Apple stock.
"Initial reviews indicate the card offers smooth integration with Apple's other apps, intuitive expense tracking, heightened privacy, and of course, titanium-level branding," Instinet analysts Bill Carcache and Jeffrey Kvaal said.
The report added, "The card may require years to reach our threshold for materiality, or above $1 billion in operating profit. Instead, we consider the card best viewed in a less linear fashion as another building block in Apple's growing financial suite, alongside Pay, Wallet, Cash, and potentially, over time, Debit."
Apple stock slid 3% to 202.75 on the stock market today. On Tuesday, Apple stock jumped 4.2% after the Trump administration backed off on its threat to implement tariffs on China-made smartphones and laptops. However, Apple still faces 10% tariffs on AirPods, Apple Watch and HomePod starting Sept. 1.
Apple Debit Card Could Follow Apple Card
Apple Card has a "fairly common rewards scheme" that might limit its ability to scale to the mass market, Instinet said. The card is built into the Apple Wallet app on iPhone. It gives users 2% cash back on regular purchases and 3% on purchases made directly with Apple.
It boasts having no annual, late, international or over-the-limit fees. Apple Card also seeks to provide interest rates that are among the lowest in the industry, the company said. Plus, if a customer misses a payment, they will not be charged a penalty rate.
Apple is partnering with Goldman Sachs (GS) and Mastercard (MA) to provide the support of an issuing bank and global payments network.
Apple also has designed a titanium Apple Card for shopping at locations where Apple Pay is not accepted yet. Purchases made with the physical Apple Card get 1% cash back.
Instinet believes Apple will next offer a debit card.
"Since most customers are likely to pay the outstanding balance on their Apple Cards via their bank accounts, Goldman Sachs will obtain customer bank account information, which it could use to offer Apple Debit," the brokerage said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor companies.
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