New Apple Card feature offers users no-interest iPhone installment plan

AppleInsider · October 30, 2019 9:36PM

Apple continues to incentivize customers to use its new Apple Card, and on Tuesday announced an upcoming feature that will grant users the option to buy an iPhone on a no-fee, interest-free installment plan.

Later this year, Apple will allow Apple Card customers to buy a new iPhone from its stores on a 24-month installment plan that carries no interest, fees or other charges. As an Apple purchase, Apple Card users will gain the usual 3% cash back on the buy.

Apple CEO Tim Cook announced the forthcoming feature during a conference call covering the company's fourth quarter earnings.

Cook did not mention when the new "feature" will roll out, but Apple could present the option prior to the lucrative holiday season.

Consistent with earnings for the several past years, Apple's fourth quarter earnings was largely driven by iPhone sales, which equated to $33.4 billion of $64 billion in total revenue. Cook noted iPhone 11 has been the best-performing handset in company history since its launch in September. That said, iPhone revenue dipped 9% on a year-over-year basis, suggesting penetration has plateaued.

Apple is continuously looking for new ways to boost sales of its most important product, from the iPhone Upgrade Program and other strategies, and the Apple Card feature appears to be another avenue for growth.

Tying in an exclusive iPhone purchase program should also serve as a boon to Apple Card adoption. Cook said in today's conference call that Apple Card enjoyed what he characterized as the "most successful" U.S. credit card launch ever, repeating plaudits expressed by financial partner Goldman Sachs in October.

apple ][ · October 30, 2019 9:49PM

Wow, that's a great feature that I think a lot of people will be using, and why not, it's no interest!

Hell, I'll probably do that myself the next time I buy a new iPhone to take advantage of this feature.

I think this is going to drive up sales without a doubt.

dws-2 · October 30, 2019 10:01PM

I wonder if we'll see this for other Apple purchases, too.

lkrupp · October 30, 2019 10:07PM

Great, Apple. Keep it in house instead of with Citizens One.

seanismorris · October 30, 2019 10:23PM

I wonder when a small business Apple Card will be released? No interest on Apple products would get a ton of small businesses on board.

Rayz2016 · October 30, 2019 11:29PM

Mmm.

So Barclays getting the boot?

sirozha · October 31, 2019 12:42AM

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales. This is also a way to push the premium product downmarket to the people who would not normally consider expensive toys like these and try to squeeze the profits out of them using this zero interest rate trick.

Why wouldn’t most people take advantage of this deal? Even if I have a grand or more to blow on a new Apple iPhone, why would I not instead pay Apple a little per month? I don’t get any benefit for paying for the iPhone outright anymore. I won’t get punished for financing the phone.

But what happens if people take this deal in masses? This could result in a huge hit to the bottom line in the first two years.

mattinoz · October 31, 2019 1:02AM

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales.

Apple has this deal already using 3rd party credit providers so may not be getting all the sales value upfront anyway. So they are moving it in-house and getting a bigger slice of the pie as they cut out another middle man.

Bonus they get additional revenue out of each customer from general spending on card.

sirozha · October 31, 2019 1:18AM

mattinoz said:

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales.

Apple has this deal already using 3rd party credit providers so may not be getting all the sales value upfront anyway. So they are moving it in-house and getting a bigger slice of the pie as they cut out another middle man.

Bonus they get additional revenue out of each customer from general spending on card.

When they do it via third-party providers, Apple gets paid 100% upfront. The third-party provider lends the money to the customer and charges an interest on the loan.

This is totally different. With this new scheme, Apple doesn’t get paid the whole amount upfront. Instead, they get paid 1/24 of the amount after a month, and 1/24 of the total amount every consecutive month until they get paid the entire amount in 2 years.

raybo · October 31, 2019 1:40AM

sirozha said:

mattinoz said:

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales.

Apple has this deal already using 3rd party credit providers so may not be getting all the sales value upfront anyway. So they are moving it in-house and getting a bigger slice of the pie as they cut out another middle man.

Bonus they get additional revenue out of each customer from general spending on card.

When they do it via third-party providers, Apple gets paid 100% upfront. The third-party provider lends the money to the customer and charges an interest on the loan.

This is totally different. With this new scheme, Apple doesn’t get paid the whole amount upfront. Instead, they get paid 1/24 of the amount after a month, and 1/24 of the total amount every consecutive month until they get paid the entire amount in 2 years.

It’s not a scheme - they’re giving a discount, much like when they pay you for your trade-in. They’re building brand loyalty for the iPhone and for their card. It’s brilliant.

dee_dee · October 31, 2019 1:57AM

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales. This is also a way to push the premium product downmarket to the people who would not normally consider expensive toys like these and try to squeeze the profits out of them using this zero interest rate trick.

Why wouldn’t most people take advantage of this deal? Even if I have a grand or more to blow on a new Apple iPhone, why would I not instead pay Apple a little per month? I don’t get any benefit for paying for the iPhone outright anymore. I won’t get punished for financing the phone.

But what happens if people take this deal in masses? This could result in a huge hit to the bottom line in the first two years.

Apple already uses subscription base accounting for all iPhones and recognizes revenue over a 2 year period due to the fact that they offer free software updates over the life of the phone. They started doing this back in 2009 or so.

You are correct that this is a sign of stalled demand. Everyone knows that The iPhone has peaked. They are now using sales incentives like this combined with higher price points to make up for this but it’s not any kind of secret. at least Apple is able to cut out the middle man as was mentioned.

sirozha · October 31, 2019 1:57AM

raybo said:

sirozha said:

mattinoz said:

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales.

Apple has this deal already using 3rd party credit providers so may not be getting all the sales value upfront anyway. So they are moving it in-house and getting a bigger slice of the pie as they cut out another middle man.

Bonus they get additional revenue out of each customer from general spending on card.

When they do it via third-party providers, Apple gets paid 100% upfront. The third-party provider lends the money to the customer and charges an interest on the loan.

This is totally different. With this new scheme, Apple doesn’t get paid the whole amount upfront. Instead, they get paid 1/24 of the amount after a month, and 1/24 of the total amount every consecutive month until they get paid the entire amount in 2 years.

It’s not a scheme - they’re giving a discount, much like when they pay you for your trade-in. They’re building brand loyalty for the iPhone and for their card. It’s brilliant.

A scheme doesn’t have to have a negative connotation.

badmonk · October 31, 2019 1:58AM

and the money customers defer payment on is used for AirPods, Watches, AppleCare, AppleMusic, AppleArcade, iCloud etc etc. So in the end services are goosed. No weakness IMHO but a great longterm strategy to expand the customer base and loyalty.

lkrupp · October 31, 2019 2:04AM

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales. This is also a way to push the premium product downmarket to the people who would not normally consider expensive toys like these and try to squeeze the profits out of them using this zero interest rate trick.

Why wouldn’t most people take advantage of this deal? Even if I have a grand or more to blow on a new Apple iPhone, why would I not instead pay Apple a little per month? I don’t get any benefit for paying for the iPhone outright anymore. I won’t get punished for financing the phone.

But what happens if people take this deal in masses? This could result in a huge hit to the bottom line in the first two years.

Desperate move? Leave it to someone like you to turn this into an “Apple is doomed” scenario.

cmd-z · October 31, 2019 2:08AM

This is already possible, albeit indirectly. I'm on Apple's Upgrade program and my Apple Card is the designated card to be billed each month by Citizen One ... and Apple gives me 3% back on each payment.

sirozha · October 31, 2019 3:24AM

dee_dee said:

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales. This is also a way to push the premium product downmarket to the people who would not normally consider expensive toys like these and try to squeeze the profits out of them using this zero interest rate trick.

Why wouldn’t most people take advantage of this deal? Even if I have a grand or more to blow on a new Apple iPhone, why would I not instead pay Apple a little per month? I don’t get any benefit for paying for the iPhone outright anymore. I won’t get punished for financing the phone.

But what happens if people take this deal in masses? This could result in a huge hit to the bottom line in the first two years.

Apple already uses subscription base accounting for all iPhones and recognizes revenue over a 2 year period due to the fact that they offer free software updates over the life of the phone. They started doing this back in 2009 or so.

You are correct that this is a sign of stalled demand. Everyone knows that The iPhone has peaked. They are now using sales incentives like this combined with higher price points to make up for this but it’s not any kind of secret. at least Apple is able to cut out the middle man as was mentioned.

Thanks for reminding me about the subscription accounting. When the sales numbers were growing year to year, the deferred profits were snowballing from quarter to quarter.

what happens to the deferred profits when the sales numbers are decreasing from quarter to quarter? The subscription accounting method should have the opposite effect, shouldn’t it?

22july2013 · October 31, 2019 7:45AM

sirozha said:

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.
Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product.
The more I think of that, the more I see this as a desperate measure to prop up sales.

That's a fair point but you are neglecting to note that Apple is sitting on hundreds of billions in cash reserves and the money is otherwise not earning much. This could be a good way to tap those reserves. Most auto companies aren't sitting on hundreds of billions in spare cash.

sirozha · October 31, 2019 9:29AM

22july2013 said:

sirozha said:

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.
Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product.
The more I think of that, the more I see this as a desperate measure to prop up sales.

That's a fair point but you are neglecting to note that Apple is sitting on hundreds of billions in cash reserves and the money is otherwise not earning much. This could be a good way to tap those reserves. Most auto companies aren't sitting on hundreds of billions in spare cash.

I’m not saying that Apple is doomed or that they are going to run out of their cash reserves. I’m only pointing out that letting millions of customers pay for their new phones over the course of 24 months without charging interest is not a sign of strong confidence in the sales numbers for the immediate future.

Additionally, as it was pointed out earlier, Apple recognizes profits on the subscription accounting method over the course of 24 months (pure coincidence?). So, the ever-decreasing quarterly sales (year-to-year) must be taking an increasingly larger chunk out of profits, which is the opposite effect to how profits were snowballing a decade ago, when this accounting principle was introduced. The effect on the profits that the sagging sales are causing that we are witnessing today is the result of what happened 2 years ago. So, in the past two years, we have seen a dramatic drop in the sales numbers, which means that the effect on the profits of those lower numbers of phones sold year to year is yet to show up in the reports.

It seems that Apple is now trying to stop the bleeding that this accounting method caused once the sales peaked a few years ago and then started gradually decreasing.

Apple is not a charity. They understand that they have painted themselves in the corner with the 38% profit margins. To maintain the profit margins, they have to price their phones high, which lowers the sales once the phone price approaches $1,000. If they lower the price to boost the sales (as they tried with the iPhone 11), they will bring down their profit margins. We haven’t seen this happen yet because the iPhone 11 was on sale for only 2 weeks in the quarter for which they have just reported. So, you are right. They decided to leverage the cash they have on hand to encourage more people to buy more expensive phones by letting them spread out the payments over 24 months with no penalty for doing so. It’s a smart move to prop up sales but it’s not a good sign of strength in projected sales numbers.

Incidentally, Americans and iPhone buyers in other developed countries have been able to pay for their phones monthly without any interest charged through their carrier’s financing. So, the sales numbers that we are seeing today are mostly propped up by similar no-interest financing schemes. It appears that it’s becoming increasingly difficult to make people keep buying new phones. Pretty soon, people will have to be incentivized to buy these phones (perhaps free 2-year 1TB iCloud storage plan with the purchase of a new iPhone every 2 years).

Someone will have to cough up the incentives to keep the folks interested, and because carriers are brand agnostic, the burden will fall on the phone manufacturers.

gordy · October 31, 2019 12:20PM

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales. This is also a way to push the premium product downmarket to the people who would not normally consider expensive toys like these and try to squeeze the profits out of them using this zero interest rate trick.

Why wouldn’t most people take advantage of this deal? Even if I have a grand or more to blow on a new Apple iPhone, why would I not instead pay Apple a little per month? I don’t get any benefit for paying for the iPhone outright anymore. I won’t get punished for financing the phone.

But what happens if people take this deal in masses? This could result in a huge hit to the bottom line in the first two years.

Other than the bold section, I agree with your assertion. I think the whole purpose of the card--and Apple Stores--was always to streamline demand, getting products & services into consumer's hands as seamlessly as possible. With services becoming a money-maker, a credit card was a no-brainier.

sirozha · October 31, 2019 1:01PM

cmd-z said:

This is already possible, albeit indirectly. I'm on Apple's Upgrade program and my Apple Card is the designated card to be billed each month by Citizen One ... and Apple gives me 3% back on each payment.

What’s your interest rate on the Citizen One loan?

elector · October 31, 2019 2:05PM

sirozha said:

mattinoz said:

sirozha said:

Who will be paying for it? If Apple sells a $800 phone and gets paid 1/24 of the total price per month, they won’t bag the entire price until after 2 years. This will take more than two years to ramp up until Apple starts collecting the same amount per month as they would if they sold the iPhone outright.

I don’t know if this can be considered a sign of strength. From the automotive perspective, when a company does 0% financing, its usually a sign of weakness via-a-vis consumer demand for the cars. When there’s strong demand, automotive manufacturers usually don’t offer 0% interest deals.

Apple is basically lending money to their customers for free, which is not something that any manufacturer would ever do unless they are expecting sagging demand for their product. The 0% financing is a way to stimulate demand. Apple pays to manufacture the iPhone upfront, but doesn’t get to recoup its costs for over a year and doesn’t make all the profit until after two years.

The more I think of that, the more I see this as a desperate measure to prop up sales.

Apple has this deal already using 3rd party credit providers so may not be getting all the sales value upfront anyway. So they are moving it in-house and getting a bigger slice of the pie as they cut out another middle man.

Bonus they get additional revenue out of each customer from general spending on card.

When they do it via third-party providers, Apple gets paid 100% upfront. The third-party provider lends the money to the customer and charges an interest on the loan.

This is totally different. With this new scheme, Apple doesn’t get paid the whole amount upfront. Instead, they get paid 1/24 of the amount after a month, and 1/24 of the total amount every consecutive month until they get paid the entire amount in 2 years.

Their is no interest on either Barclays Visa or with Citizens Bank upgrade program. In the case of Barclay Card with Apple if you don't pay it off within the time frame then there is a interest charge. Not on citizen bank zero interest

New Apple Card feature offers users no-interest iPhone installment plan

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