Apple Card is a drag on Goldman Sachs, says CEO

AppleInsider

At Davos, Goldman Sachs CEO David Solomon said his bank was too ambitious launching consumer credit, after it posted a big loss in the division mostly due to Apple Card in 2022.

Apple Card

Goldman Sachs spent a lot of money to help launch Apple Card and its other consumer services. A report from January 13 revealed the bank's consumer credit division lost $1.2 billion in nine months last year, and the losses were primarily related to the Apple Card.

"In the consumer platforms, we did some things right. We didn't execute on some others," Solomon told CNBC on Wednesday. "We probably took on more than we should have, you know, too much, too quickly."

Goldman helped launch the Apple Card in 2019 and reportedly spent roughly $350 to acquire every new Apple Card customer. And in 2022, it scaled back its efforts to turn its consumer savings business, Marcus, into a fully-fledged digital bank.

Executives of Goldman's collection of businesses known as Platform Solutions believe its consumer division may break even in 2025, although that target was initially by the end of 2022. However, the bank isn't giving up on the Apple Card.

"I think we now have a very good deposits business," Solomon said. "We're working on our cards platform, and I think the partnership with Apple is going to pay meaningful dividends for the firm."

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mystigo

Losing money on a credit card is not dissimilar to losing money running a casino.
They may only get 1 or 2% of every purchase card holders makes, but that quickly mounts up.
Unfortunately this may result in higher fees and less rewards.

eightzero

First: boo hoo hoo for GS. 

Second: how does a credit card actually lose money for the issuer? I get that some people simply welch, and that the card issuer offers incentives in cash back, but AC is no different that any other card in this regard. GS gets the usual swipe fees, and I'm guessing AAPL gets a cut. The article cites a $350 cost for each customer, but wgi did they pay that to? AAPL? Or is this some sort of aggregate overhead cost cited to bring out the pity party for GS "losses?"

Third: boo hoo hoo for any credit card company.

mike1

eightzero said:

First: boo hoo hoo for GS. 

Second: how does a credit card actually lose money for the issuer? I get that some people simply welch, and that the card issuer offers incentives in cash back, but AC is no different that any other card in this regard. GS gets the usual swipe fees, and I'm guessing AAPL gets a cut. The article cites a $350 cost for each customer, but wgi did they pay that to? AAPL? Or is this some sort of aggregate overhead cost cited to bring out the pity party for GS "losses?"

Third: boo hoo hoo for any credit card company.

Actually, part of the issue might be having customers that are too good. They pay their bills in full each month and therefore never pay interest or late fees. The swipe income is but a portion of the credit card business.

neverindoubt

eightzero said:

First: boo hoo hoo for GS. 

Second: how does a credit card actually lose money for the issuer? I get that some people simply welch, and that the card issuer offers incentives in cash back, but AC is no different that any other card in this regard. GS gets the usual swipe fees, and I'm guessing AAPL gets a cut. The article cites a $350 cost for each customer, but wgi did they pay that to? AAPL? Or is this some sort of aggregate overhead cost cited to bring out the pity party for GS "losses?"

Third: boo hoo hoo for any credit card company.

In case you weren’t being performatively clueless, the $350 cost to acquire a customer would have been paid out in advertising expense (TV, print, Google) and promotional expense (sign up bonus, referral bonus). In other media accounts it’s being held out as atypically high but ¯\_(ツ)_/¯.

Once you have a credit card customer, it’s hard to lose money on them individually, but your business can definitely lose money overall if the customers cost too much to acquire.

lkrupp

mike1 said:

eightzero said:

First: boo hoo hoo for GS. 

Second: how does a credit card actually lose money for the issuer? I get that some people simply welch, and that the card issuer offers incentives in cash back, but AC is no different that any other card in this regard. GS gets the usual swipe fees, and I'm guessing AAPL gets a cut. The article cites a $350 cost for each customer, but wgi did they pay that to? AAPL? Or is this some sort of aggregate overhead cost cited to bring out the pity party for GS "losses?"

Third: boo hoo hoo for any credit card company.

Actually, part of the issue might be having customers that are too good. They pay their bills in full each month and therefore never pay interest or late fees. The swipe income is but a portion of the credit card business.

Oh, I don’t know about that. Go take a look at the Apple Card forum in the Apple Discussions website. Lots of people trying to play typical smoke and mirrors games with their credit, asking about balance transfers, asking about hardship help, wanting credit limit increases, wanting use another credit card to pay their Apple Card payment, you know, the general low-life stuff. How many get the Apple Card, buy a MacBook or iPhone 14 Pro, and then default. I understand the credit requirements are pretty liberal.

JFC_PA

neverindoubt said:

eightzero said:

First: boo hoo hoo for GS. 

Second: how does a credit card actually lose money for the issuer? I get that some people simply welch, and that the card issuer offers incentives in cash back, but AC is no different that any other card in this regard. GS gets the usual swipe fees, and I'm guessing AAPL gets a cut. The article cites a $350 cost for each customer, but wgi did they pay that to? AAPL? Or is this some sort of aggregate overhead cost cited to bring out the pity party for GS "losses?"

Third: boo hoo hoo for any credit card company.

In case you weren’t being performatively clueless, the $350 cost to acquire a customer would have been paid out in advertising expense (TV, print, Google) and promotional expense (sign up bonus, referral bonus). In other media accounts it’s being held out as atypically high but ¯\_(ツ)_/¯.

Once you have a credit card customer, it’s hard to lose money on them individually, but your business can definitely lose money overall if the customers cost too much to acquire.

And it’s the start up part of the curve: where investment is going to outweigh income. 

spock1234

Rhythmage said:

Apple needs to invest in a bank that is 100% Eco friendly clean renewable energy & 0% Fossil Fuels. It’s a must. As a giant leading corporation. It is Apple’s ethical responsibility to keep doing the right thing. That leads to changes. Good changes. That matter. That make a huge difference in our world. Our ecosystem. Our wellbeing. 🎤✌️🍏

What an irrelevant, nonsensical post! Yes, let’s put a windmill above each bank office. And, Greta called - she wants her talking points back.

spock1234

Goldman Sucks losing money? Great news. I am proud to have done my part as an AppleCard holder. 

If they spent too much on customer acquisition costs, they have nobody to blame but themselves. So much for “the smartest guys in banking” reputation, 

mikethemartian

For those of you who are going to say you are going to play the world’s smallest violin for GS, remember nothing weeps like a cello.

sdw2001

Sounds like someone needs to fire the people who were responsible for acquiring customers and marketing.  $350 per card? Lol.  

robin huber

Yes, Apple’s Wallet app assertively encourages users to pay their balance before incurring interest. Bet GS leans on Apple to be less customer friendly going forward—looking out for the customer is bad business. Any wonder people hate banks?

FileMakerFeller

sdw2001 said:

Sounds like someone needs to fire the people who were responsible for acquiring customers and marketing.  $350 per card? Lol.  

Yes, it's sounding more and more like GS decided to get into the consumer credit business without performing any sort of due diligence - can't say I'm surprised. But they're big enough and profitable enough to ride out the initial poor performance; once they sign up enough customers they'll be able to justify the initial problems by pointing to the lifetime value of the customer and ignoring the sunk costs.

mpantone

mike1 said:

eightzero said:

First: boo hoo hoo for GS. 

Second: how does a credit card actually lose money for the issuer? I get that some people simply welch, and that the card issuer offers incentives in cash back, but AC is no different that any other card in this regard. GS gets the usual swipe fees, and I'm guessing AAPL gets a cut. The article cites a $350 cost for each customer, but wgi did they pay that to? AAPL? Or is this some sort of aggregate overhead cost cited to bring out the pity party for GS "losses?"

Third: boo hoo hoo for any credit card company.

Actually, part of the issue might be having customers that are too good. They pay their bills in full each month and therefore never pay interest or late fees.

The consumer credit industry has a nickname for these people: they're known as "deadbeats."

I am a longtime representative of this group.

Lenders basically loathe consumers with 800+ FICO scores. It's the people around 700 who comprise the sweet spot of the credit industry.

My guess is that Goldman Sachs aimed a little too high with Apple users and amassed a clientele that has less revolving debt that they had hoped. Combine that with a package of benefits and high marketing costs, GS ended up short.

I will never pay a dime in interest or finance charges. Goldman Sachs will basically never recoup that $350 they spent to acquire my business.

Worse, GS pissed me off with their lousy customer service just a month after the card's August 2019 launch and I haven't used the Apple Card since. The physical card has never left the drawer I threw it in and the electronic one sits unused in the Apple Pay app. Theoretically GS should just send me packing due to account inactivity but I have a $0.15 balance in Apple Cash which is my legal property. They would have to snail mail me a check for fifteen cents and then eat whatever administrative costs to close my account (which is probably twenty or thirty dollars).

sbdude

Rhythmage said:

Apple needs to invest in a bank that is 100% Eco friendly clean renewable energy & 0% Fossil Fuels. It’s a must. As a giant leading corporation. It is Apple’s ethical responsibility to keep doing the right thing. That leads to changes. Good changes. That matter. That make a huge difference in our world. Our ecosystem. Our wellbeing. 🎤✌️🍏

I needed that laugh. Thank you.

sidewalksurfer

I got the Apple Card, and used it three times before closing the account because it is clunky and a hassle to use - especially as a tool for managing my expenses.  I have plenty of other choices in my wallet that offer similar rewards when I shop at Apple - all without the hassle.  As far as losses, not surprising.  It has all the appearances of the rookie mistake of approving too many risky credit card applications, combined with not enough low-risk users making lots of purchases with their Apple Card.  The sad part is that GS is going to suffer the same fate with its new GM Mastercard that it bought from Capital One.