In January, a report indicated that Goldman Sachs had lost over $1 billion through its partnership with Apple for the Apple Card. Despite this, however, the company says that it remains committed to its partnership with Apple and expects it to be lucrative in the long run.
The future of Apple Card and Goldman Sachs
This comes as The Wall Street Journal reports that Goldman Sachs is pausing its efforts to further expand its credit card programs. As a refresher, the Apple Card represented one of Goldman’s first ventures into consumer banking. The bank’s only other consumer credit card is a co-branded card with General Motors. The bank was in negotiations to launch a co-branded credit card with T-Mobile but recently ended those discussions.
In line with this, Goldman is also calling back Marcus, which is its broader consumer banking business. This includes personal loan originations.
Despite Goldman’s massive pullback in consumer banking, the company is reportedly still committed to the partnership with Apple. “The bank remains committed to the Apple and GM credit-card programs, according to a person familiar with the matter,” this week’s Wall Street Journal report says.
Furthermore, at a conference this week, Goldman Sachs CEO David Solomon said that the bank expects “meaningful dividends for the firm over time.” In October, Goldman announced that it was extending its partnership with Apple through 2029. This partnership, however, extends beyond Apple Card.
Apple is also ramping up its in-house personal finance efforts as part of its efforts to reduce reliance on third parties like Goldman Sachs. Internally, this is called “Project Breakout” and would bring things like lending, fraud analysis, and credit checks in-house.
Top comment by Krugler
Credit card companies make money by being some of the shadiest organizations you can think of — encouraging minimum payments to maximize interest, unintuitive displays of important information, etc. Maybe they're losing money because Apple has gone out of their way to make the process more simple than it is for other cards, and there are big bright colors that yell at you for not settling your account in full every month.
For example, the upcoming Apple Pay Later “buy now, pay later” service will use more of Apple’s own financial tools than Apple Card. Goldman, however, is still a partner and the technical issuer of the loans. Apple is also working with Goldman Sachs for its upcoming Apple Card Savings Account feature.
How is Goldman Sachs losing so much on Apple Card?
There are two things that contribute to Goldman Sachs losing money on Apple Card. First, Apple Card doesn’t charge users any fees other than interest. Whereas other card companies nickel and dime with things like late fees and foreign transaction fees, Apple Card does not. The Apple Wallet app also actively encourages people to make payments and avoid interest.
Second, Goldman has also been very liberal in approving people for Apple Card. This has led to the bank having to charge off balances at a much higher rate than banks like Chase and Bank of America. Here are some numbers from the company’s recent regulatory filings (via CNBC):
- Goldman as a 2.93% net charge-off rate, double Chase and Bank of America
- “Charge-offs” are typically after a customer misses payments for six months
- More than $16 billion in loan balances
- More than a quarter of Goldman’s card loans have gone to people with FICO scores below 660
- Goldman is less aggressive (and less successful) at recovering charge-off debt than other banks
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