Goldman Sachs is certain to lose millions when it sells off Apple Card

Posted:
in iOS edited September 10
Apple Card is a popular hit with everyone except Apple's partner Goldman Sachs, with it likely to lose millions as it tries to pull out.

Apple Card
Apple Card

Right from the launch of the Apple Card in 2019, it was known that Goldman Sachs was spending $350 for every person who signed up. Then throughout 2023, the bank was reportedly seeing Apple as a
drag on its business.

Ultimately Goldman Sachs wanted to leave the unhappy marriage.

The reasoning for the split is that Goldman Sachs is said to have lost $12 billion in 2022, and it was chiefly because of Apple Card. The bank had other consumer credit lines, though, such as a General Motors credit card -- which was also costing the company more than it was earning.

Added to the cost of doing business was controversy over alleged gender bias in its credit calculations -- allegations it has now been cleared of -- plus an investigation over accusations of fraud. Goldman Sachs decided to pull out of the whole consumer credit market and in November 2023, Apple finally proposed a divorce settlement.

That arrangement is believed to see Apple and Goldman Sachs split within 15 months. However, now a new report says that Goldman Sachs will have difficulty finding a firm to take over its arrangement with Apple.

The Wall Street Journal, reporting on the firm's problems specifically with its General Motors (GM) credit card, says that the bank has been lax in its underwriting standards. In its bid to grow the GM business, Goldman Sachs is said to have attracted customers with lower credit scores, and is now facing a large proportion of what are called charge-offs.

A charge-off is an account that a bank has to write off because it's unlikely to be paid back by customers. Across the US, the charge-off rate for commercial banks and their credit cards is around 4.5% of their accounts, but for Goldman Sachs, it's over 10%.

Give that GM credit cards currently hold over $2 billion in balances, the high charge-off rate is reportedly putting buyers off. The UK's Barclays bank, which separately provides financing for Apple Store customers in Britain, is said to still be in talks with Goldman Sachs, but unwilling to pay the asking price.

Consequently, Apple Card balances are running at $17 billion -- over eight times the amount on GM cards. It's unlikely that Goldman Sachs will exit the deal with a significant loss.

Five years after the launch of Apple Card, it is still solely available in the US. It's conceivable that it was the expense of signing up new customers that Goldman Sachs hold back, since in 2019, Tim Cook committed to an international rollout.



Read on AppleInsider

Comments

  • Reply 1 of 13
    "Consequently, Apple Card balances are running at $17 billion — over eight times the amount on GM cards. It's unlikely that Goldman Sachs will exit the deal

    with a significant loss".

    Without 
    a significant loss - seems more likely

    or

    It's likely that Goldman Sachs ........
    tnet-primaryOctoMonkeytdknoxroundaboutnowmarklarkwatto_cobra
  • Reply 2 of 13
    So I guess this means Goldman Sachs won't be bringing these services to Canada? We're still waiting.
    watto_cobra
  • Reply 3 of 13
    gatorguygatorguy Posts: 24,561member
    So I guess this means Goldman Sachs won't be bringing these services to Canada? We're still waiting.
    I'd say that's an emphatic "No". ;)
    edited September 10
  • Reply 4 of 13
    It is really hard to pay out 2% cash back on basically all purchases and make money, unless you have a very carefully selected customer base (ie. like Chase/Amex do for their best rewards cards).  It is likely there is some stipulation requiring Goldman to be more lenient in approval than other issuers of cards with such generous rewards.
    watto_cobra
  • Reply 5 of 13
    rob53rob53 Posts: 3,282member
    So what's going to happen with GS drops the Apple Card? Will Apple simply change to a different bank? If/When they do what's that going to do to my credit? Will it cause a drop when it's cancelled and again when the next bank does a credit check?
    watto_cobra
  • Reply 6 of 13
    rob53 said:
    So what's going to happen with GS drops the Apple Card? Will Apple simply change to a different bank? If/When they do what's that going to do to my credit? Will it cause a drop when it's cancelled and again when the next bank does a credit check?
    GS is looking for someone to buy the business so your account would just move to the new bank. There would be no closing and reopening of accounts. 
    marklarkwatto_cobra
  • Reply 7 of 13
    Are they going to ask the government for another bail out?
    watto_cobra
  • Reply 8 of 13
    "Consequently, Apple Card balances are running at $17 billion " - consequently to what???  The previous paragraph talks about GM card balances and how Barclays is likely unwilling to pay asking price given the large charge-off ratio on GM card.  None of that has anything to do with Apple Card balances being $17 billion.  Poorly written article (there are also a few spelling errors).

    bukkettdknoxmarklarkwatto_cobra
  • Reply 9 of 13
    eriamjheriamjh Posts: 1,717member
    rob53 said:
    So what's going to happen with GS drops the Apple Card? Will Apple simply change to a different bank? If/When they do what's that going to do to my credit? Will it cause a drop when it's cancelled and again when the next bank does a credit check?
    AFAIK, that doesn't happen.   A new card will be issued from the new bank, but they would have bought your account from GS and assumed GS's role.   There's no end of an account or new account.  The old account is assumed.
    pslicetdknoxmarklarkwatto_cobra
  • Reply 10 of 13
    mpantonempantone Posts: 2,150member
    eriamjh said:
    rob53 said:
    So what's going to happen with GS drops the Apple Card? Will Apple simply change to a different bank? If/When they do what's that going to do to my credit? Will it cause a drop when it's cancelled and again when the next bank does a credit check?
    AFAIK, that doesn't happen.   A new card will be issued from the new bank, but they would have bought your account from GS and assumed GS's role.   There's no end of an account or new account.  The old account is assumed.
    Indeed this is what happened when Bank of America took over MBNA America. I was issued a new card a while after the acquisition but it was pretty seamless from my perspective.

    Also, I believe my credit union changed card issuing banks for their VISA credit card (the credit union is not the card issuing bank). Again this was pretty smooth from the viewpoint of the cardholder.

    A similar thing happened when JPMorganChase switched affiliation from Mastercard to VISA. I was obviously issued a new card but there was no impact on my credit rating.

    I'm curious to see how GS handles my account. My Apple Card was apparently disabled because of account inactivity. Weirdly I get monthly paper statements mailed to me. I have a credit of $0.20 (i.e. Goldman Sachs owes me fifteen cents) because I don't have Apple Cash Back Rewards tied to a bank account. That $0.20 is legally my property so GS cannot just delete my account to zero. And because they do these monthly statement mailings, they lose more each month. To permanently close my account they would have to mail me a check for $0.15 which is probably realistically something like $10.00 in administrative costs to them (it's not just a cost of a paper check, envelope and postage).
    edited September 11 watto_cobra
  • Reply 11 of 13
    The GS/Apple card has been a nightmare for me. It's all on GS. I haven't used it in over a year. 
    watto_cobra
  • Reply 12 of 13
    vtvita said:
    The GS/Apple card has been a nightmare for me. It's all on GS. I haven't used it in over a year. 
    Can you explain what you mean by a nightmare? I mean, it's just a credit card. What are the issues you have been seeing with it? I have one and use it pretty regularly and it's been very smooth. Please give some examples of this nightmare.
    marklarkwatto_cobra
  • Reply 13 of 13
    Would it be possible/practical for Apple to buy a bank of their own and keep it all internal?
    marklarkwatto_cobra
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