Personal finances Technology

A 21st Century Credit Card

Featured image courtesy of Apple, Inc. for use in this commentary.

In the summer of 2019, Apple launched the Apple Card in partnership with Wall Street bank Goldman Sachs and transaction interchange network MasterCharge. Apple made a fuss over its titanium substrate and elegant looks. Others give their attention to its interest rates, limits, fees, and cash back features. Truth be known, the Apple Card is a better than median deal for most but not a fee leader or interest rate leader. But it is the first 21st century credit card. After the break, I’ll explain why.


  7. /


  1. 15 August 2020, correct inaccuracy regarding magnetic stripe.
  2. 15 August 2020, how do I pay my Apple Card bill?
  3. 15 August 2020, Added shimming reference
  4. 15 August 2020, Added glossary and cleaned up terminology to make it consistent with the world.
  5. 15 August 2020, Added compromised card procedures
  6. 18 August 2020, Apple Card does not work with Quicken, Banktivity, etc.


  • EMV Europay, MasterCard, Visa consortium specifying the chip and pin interchange network protocol and chip to reader protocol
  • NFC Near field contactless protocol used on air between a payment terminal and a account holder token or mobile device.
  • EMV and NFC transaction use the physical card number. The physical card number takes its name from the fact that it is baked into the chip embedded in the card.
  • Card Not Present Number my shorthand for the full card number you can read in Apple Wallet. An easily replaced virtual card number.
  • Physical Card Number Apple Wallet name for the card number used for NFC and EMV transactions. Last 4 shown. It is encoded in your titanium card hence physical card number.
  • Device Account Number Apple Wallet name for the card number used by Apple Pay transactions. Last 4 shown.

21st Century ???

So why is the Apple Card the first 21st century credit card? Because it is the first designed exclusively for use with modern payment interchange infrastructure. The minimal design is striking. Nowhere on the card is there a card number, an expiration date, or a magic number for use in manual transactions.

The card itself can be used in chip-and-pin readers that support the EMV protocol described in reference [3]. It also has a magnetic stripe allowing it to be used with the deprecated stripe reading terminals.

Second, it is designed for near field radio contactless payment devices in partnership with Apple iPhone and Apple Watch.

NFC reader image courtesy of Google and NFC Times trade paper.

Apple iPhone is designed for use with near field contactless readers like the one shown above conducting a transaction with Google Wallet on an early Android device. Any transaction point showing the radio waves and card symbol is able to conduct near field contact-less transactions. In the Apple ecosystem, Apple Wallet lets you select a card and carry out the transaction. Note that Apple Card itself does not have the radio parts imbedded, just the EMV card present parts.

Apple Pay and Apple Card are integrated. Any transaction point supporting Apple Pay works with iPhone Apple Wallet and with Apple Card EMV transactions. NFC transactions require that the transaction point have the proper radio parts included.

Note that Apple Pay is an optional protocol with most merchant services providers. Some include it as a free configuration option. Others bleed the merchant for a bit more vigorish to support Apple Pay. Apple Pay is offered to merchant services folk and the interchange carriers without cost. As merchants replace readers, they are adopting EMV/NFC protocols and Apple Pay as checkout is quicker and more secure.

Apple Card is about Security

Goldman, MasterCard, and Apple designed Apple Card to be identity theft resistant. It can only be used for EMV transactions. No numbers on the card to be photographed. Yes, servers photo cards for later exploitation.

The card has multiple card numbers, one for each payment channel. There is a virtual account number card not present transactions. There is a physical card number for EMV and NFC transactions initiated by the card. There is a device card number for Apple Pay transactions. You can change the virtual account number after each use if you wish.

The Apple Wallet App shows all “completed” transactions, here completed means that the EMV, NFC or Apple pAy protocol has run from start to finish without error and an accepted status was received. You’ll also see failed transactions.

Fraudulent Transactions

Fraudulent transactions become a lot more difficult as the card must be present for most transactions. The card may be present directly, or the transaction can be Apple Pay or Apple Cash Pay if you have set it up. The EMV protocol works via hashes and transaction IDs. There is no point in the transaction where your card number is exposed to be stolen. There is no strip to copy during the swipe. There is a name on the card so you can retrieve it from your server but no other PII on the outside of the card. What there is on the card is encrypted in the EMV secure enclave on the card.

Use the last 4 of the account number to identify which of the three numbers was compromised. Report the compromise to Goldman. Goldman will carry out its fraudulent transaction procedures to reimburse you.

Activating Apple Card

Order Apple Card using Apple Wallet on your iPhone. Apple creates a card matched to that iPhone and Apple ID. Only the ordering iPhone is able to activate and use the card. Its a cryptography thing (public key and private key). To activate the card, open Apple Wallet and place the NFC antenna over the marked spot on the card’s shipping wallet. The two talk to deliver the phone’s half of the cryptographic key pair. Apple has the other half. The phone saves off its key in the secure enclave (that pesky trusted computing stuff). This cryptographic trickery complies with the EMV protocol allowing any EMV NFC reader to conduct an Apple Card transaction.

Apple Card is a Credit Card

It does not have a PIN. Some European points of sale may require a PIN for all cards. If so, you’ll need to use another card at these.

It is not a debit card. You accumulate a bill that closes at the end of the month (28th?) and is carried interest free until the end of the following month. I opened my card in mid-August. It will generate a statement on 30 August. I must pay by 30 September to avoid interest charges.

Credit Line Sizing

Apple set my credit limit at about 10% of my yearly income based on the number I gave them (about twice my Social Security). It appears to be all about Goldman’s opinion about your income statement accuracy and what they can learn about you from the credit bureaus. Spousal income is not considered.

Apple Touch or Face ID controls access

To use Apple Wallet and Apple Card, you must have an unlocked iPhone with you. Apple Touch, Face ID, and iCloud credentials control access to the Apple Card credentials used for transactions. The secure enclave in the T2 chip stores the Apple Card credentials.

Old School Transactions

On Friday, I ordered some music from Qobuz. I payed for it with my Apple Card by using the card number, expiration date, and CCV obtained from Apple Wallet. These are generated uniquely for each card. At any time, you can request a replacement trio, well just because. Or if you don’t trust the Russian Internet merchant. Those numbers are good until you say they are not and replace them.

Wallet is Really Useful

Image courtesy of Apple, Inc for use in this commentary.

Apple Wallet App gives you access to your transaction history as it is built up, your balance, payment date, and payment process. Click the Pay thing and run through the dialog. You will also receive transaction alerts.

Paying your Apple Card Bill

You pay your Apple Card bill using Apple Wallet to manually initiate an ACH transaction to transfer money from your bank account to your Apple Card account. This requires having your ACH credentials stored in Wallet which keeps them in the secure enclave on the T2 chip.

Apple Card Doesn’t Play Nicely with Personal Finance Programs

Apple Card is not designed to be used with personal finance programs such as Quicken, Mint, and Banktivity. Basically, Goldman Sachs does not offer a net portal for the purpose. Also, the card has multiple account numbers, one for each transaction environment. Only the least used card not present number is exposed for your use. The physical card number and device card number are hidden.

Apple Wallet provides a mechanism for exporting the transactions listed n a statement (they’re in your wallet) to an external computer for transfer to a personal finance manager. Reference [11] gives the export procedures. The import procedure is destination specific.

Fraudulent Transactions

Apple Card is still vulnerable to fraudulent transactions. So far, most have happened when the online card not present numbers were used and leaked by a compromised website.

Other fraudulent transactions have occurred when the EMV chip and pin interface was shimmed in a terminal and the transaction copied and used to construct a fraudulent magnetic stripe card.

Apple Card wisely uses three credit card numbers, one for card not present transactions, one for EMV transactions, and one for NFC transactions. Apple Wallet allows you to lock the apple card physical card disabling EMV and stripe transactions. You can continue to make NFC transactions using Apple Wallet and Apple Watch.

Card Not Present Number Compromised

If your card not present virtual card number has been compromised, you can kill it immediately from within Wallet by requesting a new one.

Physical Card Number Compromised

If the physical card number has been compromised, immediately lock the physical card using the lock procedure in Apple Wallet. Order a replacement card by card by running the lost or stolen procedure within Apple Wallet. You will still be able to use Apple Pay which uses the device card number.

Device Card Number Compromised

This should never happen. Apple Pay uses transaction tokenization and stores transactions locally on the secure element (T2 Chip). Report this to Apple Support! Yell really loudly. I can find no mention of a compromised Apple Pay device number.

Transaction Costs

In the US, most merchants absorb the merchant services costs. Vending machines selling candy and soda are the notable exception. Each transaction has three components, the fixed transaction charge, typically $0.25 for US providers, an interchange fee of 2% to 3% of ticket that has an interchange component and a merchant service component.

Some merchant services providers use tranches for transaction pricing with A, B, and C originators. The pricing bins are for card present, card not present, and risky business transactions. For some reason, lodging charges are risky (reservation deposits and cancellations gum up the works). Restaurants are also risky. Risky is risky in regard to the merchant services provider getting paid. Restaurants are risky because they have a short half-life. Non-profits are typically given preferred rates as little goes wrong for their merchant services provider.

More enlightened merchant services providers offer interchange plus pricing. They pass through the or other interchange network charge adding a surcharge proportional to the ticket face value. For a small non-profit, many merchant services providers will offer interchange plus pricing that averages out about 2.9% of ticket. If interchange plus pricing is available, that is the preferred pricing.


Shimming is the new skimming. You can protect yourself from shimming attacks by using the terminals NFC payment interface where ever possible. Shimming has the ability to compromise your Apple Card physical card number.

Crooks sandwich a shim between the card and the terminal. The terminal and card chat for the EMV transaction. The shim snoops on the exchange and stores the messages in flash. The shim can be inserted in the terminal and concealed. If you feel any unusual resistance inserting your card into the reader there may be a shim present.

From what the shim overhears, an unscrupulous person can recreate the contents of an old-fashioned card stripe and make a fraudulent card. This is a risk when your card disappears during the transaction and is then returned. A reputable establishment will perform the card transaction in your presence using a regular chip and pin reader.

It is possible to tamer with chip and pin readers but this is becoming increasingly hard as equipment becomes more tamper resistant to fraudulent setup alteration.

Personal finances

Bond Index Funds

How do bond index funds work? They’re not as easy as stock index funds. Stock index funds own shares of each stock in the index in the ratios found in the index. How do you do that with bonds? Especially when all bonds of a given issue may be held? Read on to find out.

Citizenship Personal finances

Income in the United States

This post grew out of research I did to prepare a discussion about income in the United States for my church’s discussion group. As I prepared the presentation materials for the opening of discussion, I learned quite a bit about how fortunate I was and how things fit together. This post is based on the following references.

  1. Income, Poverty, and Health Insurance Coverage in the United States: 2012, United States Censure Bureau Report P60-245, 2013.

An understanding of this information is important to making both personal and public policy decisions.

Standard of living

How much income does it take to support an individual or household in the United States? I was surprised to learn these figures. Unfortunately, I’ve forgotten the source so take these as 2013 thumb rules

  • $30,000 individual self-sufficiency possible
  • $40,000 individual savings for retirement and set backs
  • $10,000 per additional member of the household.

The $30,000 figure represents the income needed to live independently and provides basic housing, transportation for work, food security, and basic health care in the absence of chronic diseases or injury.

The $40,000 figure represents savings for retirement and for maintenance of reserves to meet minor health emergencies, out of work contingencies, save to replace a vehicle, etc.

The $10,000 figure represents the incremental cost of adding an additional non-working resident to the household. Thus, a single head of household with 2 children requires $50,000 for a basic standard of living and $60,000 for a secure standard of living. For a two parent household, raise these figures to $60,000 and $70,000.

Individual Income Distribution

2012 Personal Income Distribution
2012 Personal Income Distribution

This figure shows the Census Bureau’s 2012 estimate of individual income density in the US. The bar height is proportional to the number of individuals in a $2500 band, for example from $40,000 to $42,999. Normalizing by the total number of people surveyed gives an estimate of the probability density function of income levels in the US.

There are some inconvenient truths here.

  • The distribution is not Gaussian
  • The distribution is bottom weighted
  • The distribution is noisy
  • There are high-low income band pairs, cause unknown

The important thing to take away is how income is distributed. A large swath of young (< 15) are counted as zero income. The median individual income of about $40,000 is well below the middle of the range considered in the survey ($50,000). Household income has a similar distribution with the median income being $51,000.

Percentile Stuff

Because the data is gnarly, it is helpful to think of it by percentiles as shown by the figure below.

A few useful income groups
A few useful income groups

The figure shows some of the more important income bands. A percentile boundary represents the fraction of the population making less than that income level. For example, the tenth percentile tells us that 10 percent of the population earns less than $10,500. One quarter of us earn less than $22,500. One third of us earn between $30,000 and $62,500. Similarly, one quarter of us earn more than $77,000 and one fifth of us earn more than $92,000. Our doctors and dentists earn more than do 98 percent of us. The top 1.5% of income earners make more than $167,000 and to leave the 99% requires an income greater than $350,000.

Income and Standard of Living

Let’s interpret the income figures in terms of standard of living. Most importantly, the bottom 1/3 of us do not have the income to live independently. The middle 1/3 of us range from struggling to get by to independent with some savings. A 90th percentile income, although statistically wealthy, is not practically wealthy and requires careful choices of housing, automobiles, children’s education, etc.

Occupation and Income

Income of Common Occupations
Income of Common Occupations

The table above shows median income for commonly encountered occupations. Median income is that income level dividing the occupation into two equal sized groups. Half make less than median and half make more. In choosing occupations from the reference, I was careful to choose occupations we commonly interact with. So barbers, auto mechanics, plumbers, waiters, cooks, janitors, dentists, surgeons, etc are all present as are some glamorous occupations like airline pilot.

Race and Income

Household income by Race
Household income by Race

The table above shows median household income by racial group. Just the facts, no opinions and no rewarming of racial stereotypes. But half of black and Hispanic households are struggling as are maybe half of all households.

Age and Income

Income Inequality Discussion.008

This figure shows median income by age group taking the 10 year slices commonly used.

Implications for Markets

Other than the racial disparities, skill, experience, and the emergent nature of economic system behavior go a long way toward explaining these data. Broadly consumed goods and services must be either inexpensive or subsidized. For example, we all need our hair cut. To be affordable places an upper bound on the fees for this service and the earnings in the profession. The providers of this service don’t have a lot of pricing power because half of their market earns less than $40,000.

Upward Mobility?

Income and Education
Income and Education

The data show that the keys to upward mobility are educational attainment and experience in our profession, trade or occupation. But demand for services sets limits on upward mobility. First, we can’t all be rock stars or brain surgeons. The demand is not there. As the data shows, the most important thing we can do is to finish high school. After that, we can attend a trade school, apprentice in a trade, or attend college to acquire professional knowledge and gain experience in our profession being attentive to changes in demand for our services.

Implications for policy

The data suggest a few implications for public policy

  • Tax where there is money to be had, that is the top quartile.
  • Services in broad demand must be inexpensive or subsidised
  • Goods in broad demand must be inexpensive or subsidised
  • Jobs are demand driven. Subsidizing the bottom 1/3 of us produces demand for goods and services. Subsidizing the top 1% produces speculation or savings.

And a few implications for personal choices.

  • Education affords access to an occupation, trade, or profession that is in demand and pays well.
  • Choose occupations, trades, or professions for which demand is growing or under-served.
  • Choose occupations, trades, or professions that pay well
  • Be attentive to changes in demand for your occupation, trade, or profession and follow demand.
Personal finances

You know you are getting old when

  1. You start paying attention to mail from Social Security
  2. Medicare Supplement adverts begin to flood your mailbox

Both of those have happened. Will you still love me when I’m 64? And Medicare sets  you free from your employer’s health care plan! When that happens, my employer has nothing to offer that I want!

Some Modeling

That’s what I do so naturally, this winter I sat down and made some financial planning models. I’d done that exercise a year or so ago but was not satisfied with it. I began to look around for something more robust than my shaky advanced mathematics and found Economic Security Planner is a sophisticated planning product developed by a Lawrence Kotlikoff, Boston University professor of economics, and his graduate students. It originally began as research with a spin-off company started to provide Windows software and web service. Professor Kotlikoff is a regular contributor to NPR’s Marketplace and to PBS News Hour.

Introducing ESPlanner

ESplanner is available as a web service and as a MS Windows program. The program version comes in 3 levels, basic, andvanced, and professional. The advanced and professional versions provide the same model but the professional version has client data management capabilities of interest to professional financial planners. The web service is layered with tiers similar to those of the program product. For most people, especially, those like me who keep a Microsoft Free Household (TM), the web service is the way to go. One program does not justify the hassle of Parallels and MS Windows administration when there is a viable alternative.

You can try the basic planner as a web service. The free test drive lets you enter model parameters, make runs, and retrieve reports but you cannot save your model for future updating. ESPlanner offers several levels of subscription that make saving model configuration, support, and advanced features available. The advanced versions of the model offer a couple of additional features.

  1. Monte Carlo evaluation for susceptibility to economic and market variability
  2. Pessimistic planning assuming that you loose all of your stock assets.

My first impressions of both of these features is that they are of limited use for assessing the basic adequacy of your retirement planning. What they do is offer some additional assurance that your standard of living is reasonably immune to market and economic events.

How ESPlanner Differs

Most free planners let you assume a yearly draw and determine the amount of assets needed to provision that draw at retirement. ESPlanner has a second mode of operation that answers the question “Given the assets I have, how much can I draw yearly?” Being in the position where wealth accumulation is drawing to a close, I used ESPlanner in this mode to determine what level of income my estimated assets at retirement would support. To my knowledge, this capability is unique and the results were reassuring. I was able to confirm that I held sufficient retirement assets to maintain my current standard of living.

What’s In the Model?

The ESPlanner model includes the following processes

  • Asset holdings
  • Investment performance
  • Proper treatment tax-favored (IRA and 401K) and regular brokerage accounts
  • Proper treatment of defined benefits pensions
  • Social Security and Medicare
  • US and State income taxes
  • Longevity assumptions (they recommend planning to 100)
  • Recurring obligated payments like mortgage, insurance contracts, etc
  • Planned expenses like cars, home renovation, college tuition, offspring’s weddings, etc
  • Periodic income from work or other continuing periodic sources
  • Lump sum income from estates, asset sales, etc.

The model calculates the yearly discretionary spending that your assets can support. In ESPlanner’s terminology, discretionary spending is any spending that is not obligated by law or by contract. For example, your taxes, mortgage payment, and loan payments are obligated. ESPlanner estimates your Federal and State income taxes from your total taxable income.

Monte Carlo Modeling

With the optional Monte Carlo feature enabled (at added cost) the model includes Monte Carlo analysis of sensitivity to historical stock market variability. This feature is useful for confirming that your holdings are adequate to survive stock market swoons and recoveries and inflation variability.

The Upside Investing Bit

The “Upside Investing” bit models the conversion of stocks to “safe” assets like bonds. Typically, you do this as you harvest growth assets to produce income. The process is a bit of a bucket brigade from stocks to intermediate bonds to short term bonds or cash. This is a rolling process because a good bit of the portfolio (50 to 65 percent) must remain growth invested to produce asset growth that keeps pace with inflation. The model does Monte Carlo analysis to confirm the adequacy of the asset migration plan in the presence of stock market swoons and recoveries. I found this feature less useful, possibly because I misused it.

Inflation and Investment Performance

Mean inflation rate and mean investment performance for each investment account are model input parameters. ESPlanner recommends 3% inflation and 5% investment growth. I used these values. The 5% value may seem conservative but this value is picked to reflect your mix of stocks and bonds. This is an assumption that I need to verify from time to time. During 2013, the S&P 500, NASDAC, and Dow are all up handsomely with soft bond performance. Bonds are returning coupon.

ESPlanner considers inflation and asset growth/shrinkage as part of the model but this does not appear explicitly in the reports. Rather, ESPlanner shows the reports in constant dollars. I find this easier to interpret than use of future dollars for future years. Future dollars make the inflation effects apparent but could mask declining real standard of living.

Social Security?

In the spending model, Social Security is an input obtained from the Social Secuirty web site or the yearly mailng. For a single person, that works well. If you have a spouse, you and your spouse have different ages and different earnings histories, and you have dependents, Social Security strategy becomes a complex problem with about one million permutations. The purpose of the Social Security optimizer is to evaluate you and your spouse as a unit to determine the optimum Social Security utilization strategy. Who should be the primary, who should be the survivors. Should one of you start and then suspend benefits? If you are single, the result is obvious as explained below. If not, then you need to use this model.

ESPlanner, Inc offers a Social Security optimizer. I gave it a try also and was surprised! The Social Security Optimizer told me I should delay collecting Social Security until age 70. Being a single male, this is a pretty simple decision. Delaying to age 70 to begin drawing Social Security increases your yearly draw by 1/3 from a defined benefits inflation protected source. By doing so and putting this result into the ESPlanner spending model, I was able to show that my yearly spending could increase relative to starting Social Security at age 66. The increase was significant.

This result seems counter intuitive so some explanation is in order. In the age 66 scenario, you must conserve assets early in retirement to maintain late in retirement standard of living. By delaying until age 70, those sequestered assets are freed to pay income during the shorter 100% out of pocket period. Basically, you are betting that you will live longer than the median life expectancy which Social Security uses to determine the payout rates. The Social Security early and late start adjustments are actuarially neutral. If your family history suggests, as mine does, that you will outlive median life expectancy for your cohort, it is a reasonable risk to take. My aunts and uncles not claimed by lung cancer or early colon cancer lived into their late 80’s and both paternal grandparents lived past 90. Given that I don’t have the risk factors (smoking, agricultural chemicals) of the early mortality uncles, It is a good gamble.

The other thing that surprise me was that Social Security would be a significant fraction of my after-seventy spending. For me, about half, maybe a bit more. A big surprise since I’m about a 92 to 93 percentile wealth unit. I’d assumed that Social Security would be providing Starbucks Money. Suddenly, I’m very much more interested in the shenanigans of the Republican House of Representatives now that I know Social Security will be doing more than buttering my bread.