When it comes to widely-distributed credit cards, only two names come to mind: Visa (NYSE:V) and Mastercard (NYSE:MA). While not attacking other rivals in the sector, these two have long battled for nominal supremacy. As a result, it’s not surprising to see Visa stock respond positively over the years.
Source: Kārlis Dambrāns via Flickr
For decades, the Visa slogan was “It’s everywhere you want to be.” And with 323 million cardholders, that message clearly resonated with consumers worldwide. For starters, subscriber count notably exceeds Mastercard at 191 million cardholders. Most critically, over eight million merchants accept Visa, invariably bolstering the V stock price.
That sentiment has held true this year as well. On a year-to-date basis, V stock is up nearly 20%, contradicting worries of a global economic slowdown. However, an unlikely competitor has now entered the fray.
Visa Has a New Rival
At the start of this week, consumer-technology giant Apple (NASDAQ:AAPL) launched their product showcase. Celebrities such as Oprah Winfrey, Steven Spielberg, and even Big Bird made appearances, talking up all things Apple.
Of particular interest to Visa’s management team, as well as Visa stakeholders, is the Apple Card. Working in conjunction with Goldman Sachs (NYSE:GS) as the bank issuer and Mastercard for payment processing, Apple marketed their new credit card as a product for the masses. It will feature zero fees, a simple interface, and of course, synergistic compatibility with the iPhone and other i-devices.
On paper, the new Apple Card threatens Visa in a number of core areas. Primarily, the tech firm aims to disrupt Visa’s market share through selling points that appeal to the broader public. While AAPL didn’t dive into details regarding interest rates, they implied that they’ll accept a wide range of credit scores.
Clearly, they’re not attempting to compete with the American Express (NYSE:AXP) Centurion Card, which is invitation only. And with Apple’s partnership with Mastercard, it’s obvious that their focus is on Visa and indirectly, the V stock price.
Secondly, almost a billion people actively use their iPhones. Thus, even if Apple stays exclusively within their ecosystem for their credit card, this is still a massive ecosystem. Furthermore, iPhone users are more likely to own other Apple products, enhancing engagement.
Finally, iPhone app users have a much higher income than their Android-based counterparts. We’re talking an average salary of $85,000 compared to $61,000. Therefore, Apple doesn’t necessarily have to win the nominal game in order to win big. Naturally, this concerns folks who are heavily vested in Visa stock.
More Hype Than Substance
At the same time, I wouldn’t get overly worried. Yes, the Apple Card does have some strong attributes. However, we should also consider this latest product’s vulnerabilities.
First, AAPL has found itself in an awkward position: running low on good ideas, and falling behind on others. Despite substantial efforts, the company’s revenues are heavily leveraged towards iPhone sales. Without the iconic smartphone, it’s a pretty generic organization.
That last statement sounds inflammatory until you consider that names like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have taken the lead in products like smart speakers. They’re also venturing out into viable growth channels like cloud computing and even video games.
On the other hand, Apple has a credit card. It’s neat and trendy, but it’s still a credit card, something that’s been around for ages. Since Visa is the top dog in this arena, I doubt the debutant will hurt Visa stock.
Second, for all practical intents and purposes, the Apple Card is yet another Apple product. Translation: it’s probably not going to work well outside the company’s ecosystem. As I mentioned earlier, AAPL levers an enviable network. However, to win the credit card wars, you need the numbers.
Sure, most iPhone users are rich. However, a great many are just average income-earners. Invariably with credit cards, you’re going to create a different experience for customers based solely on their finances. If you think about it, this sounds awfully discriminatory and is a bad optic for a popular retail-goods manufacturer. This does, however, benefit Visa stock through a PR perspective.
Third, and most important, the Apple Card doesn’t offer a compelling reason to join up. Even partner Goldman Sachs politely said the same thing.
Gimmicks Won’t Take down Visa Stock
If you worried about Apple’s disruption into your holdings of Visa, don’t. As their own unbalanced product sales demonstrate, Apple can’t even disrupt themselves.
Moreover, jumping into credit cards is no easy task, even for a former trillion-dollar company. Not only do competitors require massive resources, they also need networks and a cohesive marketing plan. Apple only has one of these attributes, which subsequently lifts V stock by default.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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