Every time there’s some Apple Card news, it prompts the same question from Brits: When is Apple Card coming to the UK? Substitute France, Germany, Belgium, Italy, Spain, and so on as appropriate.
Only Apple knows the answer to this, but the truth is, it doesn’t much matter – because those tasty 1% to 3% Apple Cash rewards are never going to be offered in Europe …
To understand the reason for this, we have to delve a little into the economics of debit and credit cards.
When you make a card purchase, your card issuer of course has to pay the merchant. It may do that almost immediately, or it may be some time later – but in most cases, it will be before you pay the card company.
That means that, even if you pay off the card balance in full at the end of each month, you’ve still borrowed money, and somebody has to pay the interest on that – along with all the other operating costs of being a card provider. Card companies have to find a way of recouping those costs.
When someone runs up a debt on their card, and makes only minimum payments, card companies make money from the interest charged. But many of us use our credit card like a charge card, meaning we pay off the balance in full as soon as we get the statement. That means we pay no interest, and the card company would be losing money on the deal.
Some premium cards charge an annual fee in return for various rewards, but most cards don’t – including the Apple Card.
So how can Apple afford to offer cash rewards of between 1% to 3%, depending on how and where you use it?
The answer is through what are known as interchange fees. These are fees that card companies charge to merchants whenever they take a card payment.
In the US, interchange fees are relatively high. They typically start at around 0.8% of the transaction plus 15c, and rise as high as 2.95% plus 20c for certain purchase types made with ‘premium’ cards. And Apple Card, despite being available to most people, and charging no cardholder fees, is classified as a premium card.
That gives Apple – or Goldman Sachs – plenty of room to cover the cost of the Apple Cash rewards.
Things are, however, very different in the UK* and the rest of Europe. For EU countries and other European Economic Area members, interchange rates are strictly controlled by law.
*The UK is technically no longer an EU member, but is currently subject to a transition agreement which means it currently still has to abide by all EU rules. Even after this period ends, it is unlikely that the UK will choose to let card companies make like bandits by scrapping the limits.
European interchange fees for consumer cards are capped at 0.2% for debit cards, and 0.3% for credit cards. That’s it. So Apple – or its European partner banks – would only have that much margin to play with. (Higher rates apply to corporate cards.)
Now, it’s possible Apple would take a broader look, and say, ok, it’s making no money from people who repay their balance in full each month, but it makes money from those who don’t. It could, in principle, charge higher interest rates to subsidize rewards.
But the credit card industry is a competitive one. People who carry a card balance, and thus incur interest charges, will generally shop around and get the card offering the lowest interest rate consistent with their credit rating. So, in reality, it wouldn’t be practical to charge higher interest rates than other cards. Nor would partner banks be likely to agree to take a smaller cut to fund rewards.
All of this means that there is less appeal to Apple in launching the Apple Card in Europe, and even if it does so, it won’t be able to offer anything like the level of rewards it does in the US. So when is the Apple Card coming to the UK? We don’t even know for sure that it will. But even if it does, it will be nothing to get excited about.
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