Trusting the Apple Card — privacy and security in the digital payment era

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The Apple Card launched last week with an unusual value proposition: “a new level of privacy and security,” the press release reads. 

Making the push to prioritize privacy and security this year is a continuation of Apple’s initiative to bake the two themes neatly into its overall brand. The privacy promise might help further separate it from some on Silicon Valley’s rap sheet in data privacy, but earning user’s trust is also a key factor to success in the fintech space. As of now, Apple’s well-positioned to see an adoption of its latest foray into financial services. 

“Apple takes up lots of real estate within a consumer’s digital, mental and financial pockets already,” said Melissa Frakman, founder and managing partner at EMVC Fintech Fund. “And trust is the biggest barrier for any new entrance into financial services…Apple is a global leader in design, and leveraging those user insights and capabilities for a new financial services experience for something as ubiquitous as digital payments, has the opportunity to be transformational.”

The trust may already be there, especially since the card’s user interface is nested into Apple’s iPhone Wallet app. In fact, Apple Pay leads the pack on digital payment methods in North America, as 50 percent of retailers have already adopted it, and only 18% say they’re holding off on adoption with a ‘wait and see approach.’ Apple’s using the card to push its Apple Pay service, too: Along with 3 percent cash back on all Apple purchases, cardholders will get 2 percent back on purchases made through Apple Pay and 1 percent back on everything else.

For Apple, the Apple Card seemed like “a logical next step,” Frakman said.

Is Apple really taking privacy and security to a new level?

Credit card security

The rise in data breaches has caused consumers to become increasingly concerned with where their personal information travels and who’s using it. With this in mind, a credit card branded as delivering a refurbished take on privacy and security may seem even more appealing, especially considering credit card fraud accounts for the largest number of identity theft reports (based on 2018 data from the III).

The Apple Card is different from competitors in a way that leads Ted Rossman, industry analyst at Bankrate, to dub it the “digital-first card.” 

In terms of security, it’s the first to forgo a number, CVV, expiration date or signature displayed on either side of the physical card. “It’s a great online security measure,” Rossman says. “Because in order to use the Apple Card online, you have to have the phone, and you have to look in the Wallet App and find the card number, the expiration date and the CVV in there — then, because the phone also has additional security measures like either face ID or a thumb print, depending on which iOS you’re using, there’s a lot of added security there.”

Why unveil a physical card if it mainly lives in the digital realm? Because even though mobile wallets are gaining speed, they still aren’t accepted everywhere in the U.S. And “consumers really like having a plastic card in their wallet in addition to a mobile wallet,” Frakman said. Plus, the Apple Card has an EMV chip on the front for non-Apple Pay purchases.

While hiding the physical numbers may help block skimmers, there’s still something to be said for online credit card fraud today, despite widespread EMV adoption. Basically, the internet isn’t without vulnerability when it comes to protecting your data. In fact, one study from the Gemini Advisory found that of all U.S. payment cards compromised last year, 25 percent were compromised via online breaches. 

Designed to protect Goldman Sachs — not just the consumer

Mitigating credit card fraud may not be the only reason those numbers don’t appear on the Apple Card. Rossman says he isn’t surprised Apple chose to partner with Goldman Sachs on the project, and that the card’s innovative security features don’t just help protect consumers. 

“Something I think is interesting about this is that it really protects the card issuer — Goldman — more than it does the consumer,” Rossman said. “So even though the security aspect of this is nice, I don’t think it’s really a reason for an everyday person to get the card, just because credit cards always have zero-liability policies.” 

The Fair Credit Billing Act (FCBA) minimizes a consumer’s liability in the event of credit card fraud — in fact, the amount caps at $50. Banks and merchants are left to absorb the costs, and most issuers have zero-liability policies that will wipe your account of fraudulent charges. The American Bankers Association reports that projected card fraud losses for banks and merchants combined could reach over $32 billion this year

 “The reason that this online security feature really helps the card issuer is that it really limits their cost of the time it takes to deal with this, and the hassle and expense of refunds,” Rossman added.

Digital privacy

Apple might seem like the leader in digital privacy when compared to the rest of the big tech space, it isn’t perfect. For example, just look at the whistleblowers who informed The Guardian that Apple contractors were able to listen in on Siri queries (even the ones that weren’t prompted by ‘Hey, Siri’).

These headlines and reputations may lead to suspicions that can be projected onto the Apple Card, but Apple says: “Of course, Goldman Sachs will use your data to operate Apple Card. But they will never share or sell your data to third parties for marketing or advertising.” Apple also says it won’t be able to see your card data, either. 

Rossman says he’s unsure of how Goldman will make money off the Apple Card. “I think it’s going to be hard for Goldman to make money off this, because there’s no fees — so no annual fee, no foreign transaction fee, no late fee — none of those fees,” he said. “Apple’s encouraging you to pay as much as possible. I mean, we know as consumer finance advocates that you should pay as much of your credit card bill as you can…That’s good for consumers, but could cut into Goldman’s margins.”

Some reports indicate that Apple and Goldman have an opportunity to use this data to their advantage eventually. According to MarketWatch, the pair could “theoretically” use the information collected on users to “offer installment loans to card holders for big purchases at the point of sale.” Reuters, on the other hand, reported that Goldman would not be allowed to use the data for its own marketing purposes.

But Apple may not be your only worry. “I think a lot of people fail to realize how widely their credit card information can be shared and sold [by the issuer]…Apple Card is really taking the opposite approach here,” Rossman said. According to his research, he says most card issuers are sharing your purchase information within their company, with their affiliates and, in many cases, third parties (retailers, hedge funds, etc.). Apple may be taking the “gentler” approach. “Google, meanwhile, they can share a lot of data about you on Google Pay, for instance — not even getting into the whole search engine thing.”

Why Apple wants in on the credit card industry

Sure, iPhone sales are declining, and Apple needs a way to recoup lost revenue. But Apple also may want in on your everyday financial life. 

The Apple Card seems to fall in line with current payment trends in the U.S., as the 2018 TSYS Consumer Payment Study reveals that 44 percent of respondents reported using peer-to-peer payments. Along the same vein, 66 percent of respondents said they wanted to redeem cash back rewards through mobile apps. The Apple Card lets you redeem cash back rewards at any time, which, for example, can then be immediately sent to a friend to split a pizza.

“With the “Daily Cash” feature, Apple is tapping into the notion of instant gratification, to where consumers will get an almost immediate delivery of rewards, which may be attractive to some users,” Cyndie Martini, president and CEO of Member Access Processing, in a statement to Bankrate. 

The trend surrounding immediate gratification may speak to a global shift in payment preferences. Companies like Alibaba and its mobile payment app (Alipay), according to Rossman, have more or less displaced the banks in China. According to research on transaction trends by Yuqian Xu, a professor of business administration at the University of Illinois, paying for goods with a smartphone increases transaction frequency and “effectively replaces the actual, physical credit cards in [consumers’] wallets” once adopted. (Courtesy of Illinois News Bureau.)

While it might be easier to pay with your phone, Rossman says the U.S. isn’t in a position to displace the banks anytime soon. However, the Apple Card itself could be a sign that the U.S. is testing the waters on a cashless arena. Of course, a cashless society necessitates a level of trust. 

“The card itself demonstrates that the future of security in the fintech is not bank cybersecurity programs but omni-channel spending and cellular data protected by biometrics and encryption,” Frakman said.

But Nicholas Economides, an economics professor at N.Y.U., says the Apple Card won’t really have a significant impact on the future of the fintech space. 

“There is a great gap in the use of technology in payments systems in the U.S. The U.S. is way behind China,” Economides wrote in a statement to Bankrate. “Apple is just another branded issuer of a credit card, like AT&T or NYU,” he said. One of the reasons big tech companies are diving deeper into the personal finance realm, according to Economides, is that “the way charge and charge card transactions are presently processed (through networks of dedicated machines) is antiquated.” Economides says there’s a need for a technology-based solution that will bypass the credit card network fees. (The Apple Card runs through the Mastercard network.) 

Final thoughts

Whether the Apple Card is beginning to revolutionize payments in the U.S. — experts agree that it does offer a few newer security-friendly features. Although the real impetus to apply may hinge on how avid an Apple fan you are. And, of course, your credit score. “I’m increasingly thinking of it as a starter card,” Rossman said. “So this card’s not so much for the elite credit score miles-chaser, but if you have no credit or subprime credit, these rewards are appealing.”