Credit cards

In brief:

• Visa has offered Apple $100 million to become the new network behind the Apple Card, as Apple prepares to replace Goldman Sachs as its issuing bank.

• Mastercard, Visa, and American Express are in a heated competition to power the high-profile card, which has around $20 billion in balances and deep integration with Apple’s payment ecosystem.

• Apple is expected to choose a network before selecting a new bank, with the outcome potentially shaping the future of its expanding financial services.

Details

If you have an Apple Card, you may soon see a Visa or American Express logo where the MasterCard logo is right now. That's because a high-stakes battle is underway between the nation’s largest payment networks for control of one of the most coveted cards in consumer finance: the Apple Card.

With Goldman Sachs stepping away from consumer lending and looking to exit its role as the Apple Card issuer, a scramble has emerged among big-name financial institutions to take its place. But behind the scenes, a parallel and equally fierce competition is unfolding among payment networks—Visa, Mastercard, and American Express—each jockeying to power the card’s transactions.

According to sources quoted in a Wall Street Journal report, Visa has made a bold move by offering Apple a roughly $100 million upfront payment in a bid to wrest the Apple Card network partnership away from Mastercard, which currently operates the network for the sleek titanium card. That type of payment is typically reserved for the largest and most lucrative co-branded card deals.

A card worth fighting for

Launched in 2019, the Apple Card has become one of the biggest co-branded credit card programs in the U.S., with about $20 billion in balances. It has long been seen not just as a financial product, but as a key to Apple’s broader ambitions in consumer finance. Its integration with the iPhone Wallet app has made it a central part of the daily financial habits of millions of Apple users.

“Whoever wins the Apple Card deal gets more than just transaction volume — they get a front-row seat to Apple’s growing influence in payments,” said one person familiar with the negotiations.

Payment networks earn fees when purchases run over their “rails,” and Apple’s card sees high transaction volume. But more strategically, the card ties directly into Apple’s broader ecosystem of digital payments, personal finance features, and potential future banking tools.

Who’s competing?

• Visa, the world’s largest payment network, is aggressively bidding with an offer Apple hasn’t seen since Costco chose its network a decade ago.

• American Express is also making a play, reportedly aiming to become both the issuer and network for the Apple Card — a model it already uses for its own cards.

• Mastercard, the current network partner, is fighting to retain its role, and has explored leveraging its fintech platform Finicity to expand Apple’s capabilities, such as letting users view their bank account balances directly within Apple’s system.

Apple is expected to select a new network partner before choosing the next card-issuing bank. Leading contenders for the issuer role include JPMorgan Chase and Synchrony Financial, both of which have extensive experience managing large co-branded portfolios.

Goldman’s Exit

The reshuffling stems from Goldman Sachs’ decision to retreat from consumer lending, including the Apple Card and its broader “Marcus” initiative. Talks to hand off the Apple Card have been ongoing since at least early 2023.

A final decision by Apple is expected in the coming months. Whatever the outcome, the winner will gain more than a credit card — they’ll gain a strategic foothold in the evolving world of Apple-led consumer finance.

Credit-card debt in the U.S. hit another record after an unusually-high increase following the holidays.

Debt from credit cards reached $1.21 trillion in the quarter ending in December after growing around $45 billion from the previous quarter, the Federal Reserve Bank of New York said Thursday.

"We saw a larger-than-usual pop this holiday season," said Ted Rossman, senior industry analyst at Bankrate.

Credit card balances almost always rise from year to year, but usually balances fall in the beginning of the year since Americans are detoxing from holiday spending and use tax returns to pay down debt, Rossman said.

He said it is critical to pay down debt as quickly and cost-effectively as possible.

"My favorite payoff tip is to sign up for a 0% balance transfer card," Rossman said. "These allow your to transfer your high-cost debt and avoid interest for up to 21 months."

There’s growing evidence that Americans are struggling with their credit card debt, which has grown significantly since the COVID-19 pandemic. A new report from the Federal Reserve Bank of Philadelphia found credit-card balances in the third quarter rose to their highest levels since 2012. The report showed more consumers are making just the minimum amount each month.

During the pandemic, consumers made significant progress in paying down credit card balances. However, as inflation accelerated, many consumers used credit cards to keep their heads above water.

“Credit card performance is showing signs of consumer stress,” the report’s authors wrote. “The share of active credit card accounts making just the minimum payment hit a 12-year high. The share of revolving card balances to total card balances is continuing its rise since the end of the pandemic. The share of delinquent balances continues to worsen year over year after surpassing pre-pandemic levels in third quarter 2023.”

Mark Damsgaard, vice president of marketing at Vancis Capital, says inflation may have cooled since its peak in 2022, but its lingering effects have left many households stretched thin, particularly when it comes to essentials like groceries, utilities, and housing.

More reliant on credit

“Also, many lower- and middle-income households aren’t able to keep up with the rising costs of living, so they’re more reliant on credit,” Damsgaard told ConsumerAffairs. “And with layoffs in key industries and a potential recession, income has been unstable, so it’s harder to stay current on payments.”

Utility costs alone have emerged as a major burden for households. A December report from doxo showed the average U.S. household now spends $362 per month, marking a 3% increase from the previous year. This analysis, part of doxoINSIGHTS' U.S. Utilities Market Size and Household Spend Report for 2024, found that Americans collectively spend $451 billion a year on utilities, underscoring the growing financial burden on households across the nation.

In response to weaker credit performance, the Fed said banks are adopting more conservative lending standards. It said tighter bank underwriting is resulting in a measurable decline in new card origination commitments and higher origination credit quality with new account-holders possessing higher credit scores.

The Consumer Financial Protection Bureau has turned its attention to credit card rewards, which some consumers say are less rewarding these days.

In a policy circular, the CFPB warned that credit card lenders that water down or even cancel their rewards may be in violation of the law.

There are many different types of credit card rewards. Travel cards generally offer rewards based on miles that can be used to pay for future travel. But among the most popular rewards is cash back, with the lender giving the consumer anywhere from 1% to 5% of their purchases.

While cash-back rewards are fairly straightforward, travel rewards can be a little vague.

The CFPB said many consumers apply for cards based on the specific rewards they offer. The bureau says current law prohibits unfair, deceptive and abusive practices in administering rewards. Currently, the bureau says nearly 75% of credit cards offer some type of reward.

Putting a price on rewards

As ConsumerAffairs reported in 2023, credit card rewards are not what they used to be. At the time, hoteliers Marriott, Hilton, and Radisson points were valued at less than a penny while others like Hyatt valued theirs at 1.7 cents each. 

The Points Guy, a travel rewards website, publishes a monthly valuation of credit card travel rewards. In its December valuation, it breaks it down this way:

As sports gambling continues to expand across the United States, with online sports betting now legal in 38 states, consumers are increasingly encountering unexpected financial pitfalls, especially if they are putting their wagers on a credit card.

Last year alone, nearly $120 billion was wagered on sports, but many bettors are facing steep "cash advance" fees when using credit cards for these transactions. The Consumer Financial Protection Bureau (CFPB) has highlighted the financial implications of using credit cards for sports betting, showing that lenders often treat these transactions as cash advances, leading to significant fees and interest charges.

In a recent analysis, the CFPB examined credit card agreements from major issuers, consumer complaints, and data from states like Kansas and Ohio, where sports betting was recently legalized. 

The findings indicate that most credit card companies, including Chase, Discover, and American Express, classify online gambling transactions as cash advances. This classification triggers high fees and interest rates, which can catch consumers off guard.

Cash advance fees are not cheap

Cash advances typically incur fees that are either a flat rate or a percentage of the transaction, whichever is greater. For example, a $20 sports wager could incur the same $10 fee as a $200 cash advance withdrawal from an ATM.

Additionally, cash advances begin accruing interest immediately at rates often around 30%, significantly higher than regular purchase rates. This means that even small bets can quickly become costly, with fees and interest accumulating rapidly.

The CFPB's analysis of credit card use in Kansas and Ohio showed a spike in cash advance fees following the legalization of sports betting. The Bureau suggests that many consumers are unaware of the financial consequences of using credit cards for gambling, as disclosures about these fees are often unclear or inconsistent. Complaints from cardholders indicate a lack of transparency from both sportsbooks and credit card issuers, leading to confusion and unexpected charges.

Also, you could lose

And of course, the bettor could lose. They don’t lose their own money, they lose money they don’t have, but will have to pay back, along with the fees.

To their credit, not all credit cards allow sports betting. Some issuers, like Bank of America and Wells Fargo, state they "may" decline internet gambling transactions, relying on merchant categorizations set by networks like Visa and Mastercard. 

However, mobile sportsbooks continue to accept credit cards, with a significant portion of bettors preferring this payment method.

The CFPB said its findings underscore the need for greater transparency and consumer awareness regarding the financial implications of using credit cards for sports betting. As the industry grows, both regulators and consumers must navigate the complex landscape of fees and interest rates to avoid unexpected financial burdens.

An unfortunate fact of life during the holidays is that millions of consumers add to their credit card balances. They may have every intention of paying them off but all to often those charges are still on the account when the next holiday season rolls around.

A  new study by LendingClub Corporation documents the problem, showing that a significant portion of Americans find themselves ensnared in unintentional credit card debt, leading to financial instability and mental distress. 

Despite initial intentions to use credit cards for convenience, credit building, or rewards, nearly half of cardholders end up carrying a balance, often unaware of the high interest rates they are paying.

The research highlights another troubling trend: many consumers do not view credit cards as loans, which leads them to overlook interest rates and terms. This oversight has resulted in 47.3% of Americans accumulating revolving credit card debt, exacerbated by inflation and rising living costs, particularly in food and groceries.

Conflicting realities

Part of the problem may be consumers find themselves in conflicting realities. Nearly 66% of Americans say they can manage their finances without credit cards, 60.3% use them weekly. This dependency can lead to significant financial burdens if balances are not paid in full each month. Nearly 27% of Americans dedicate as much as 40% of their paycheck to credit card debt, a cycle that is difficult to escape.

"No one intends to carry credit card debt, and that's part of the problem," said Mark Elliot, chief customer officer at LendingClub. 

"Cards are great for convenience, to build credit, or to earn rewards, but if you use them as a loan, you need to know how to pay down that high-interest loan as quickly as possible. If you can't, your debt can grow exponentially and you can find yourself on a hamster wheel of credit card debt. Once you're on that wheel, it can be really hard to get off, and that's why credit cards are so lucrative for issuers."

Emotional toll

The emotional toll of this debt is profound, with 75% of Americans frequently thinking about their debt and 40% experiencing negative emotions such as anxiety and frustration. 

Managing credit card debt can be complicated by having multiple balances, fluctuating interest rates, and varying payment schedules. Despite efforts to manage these debts, many Americans lack effective tools, with 22% indicating they lack proper monitoring resources and 28.7% seeking advice from informal sources like family or social media.

Strategies such as the debt snowball or avalanche methods are common but can be slow and costly due to interest charges. Only 10.4% of respondents opt for consolidating debt into a personal loan, which could offer lower interest rates and a structured repayment plan.

As the holiday season approaches, Elliot advises consumers to monitor their credit card debt and plan for repayment.