Goldman Sachs spends $350 for every Apple Card signup
Goldman Sachs is spending somewhere in the region of $350 to acquire every new customer of Apple Card, analysts claim, with the investment bank not expected to make a profit on the user until they have been a customer for four years on average.
To set itself up for Apple Card, Goldman Sachs has already spent considerable sums preparing itself for the influx of consumers, including approximately $275 million from the start of 2019 until mid-July on public-facing initiatives including Apple's credit card and the bank's Marcus savings and loans service, and $1.3 billion on consumer services in general. According to Nomura, the bank may not necessarily see a profit from the Apple Card enterprise anytime soon.
In an investor note seen by CNBC, it is believed Goldman Sachs is spending in the order of $350 to acquire each user. Nomura believes that this is an outlay that will take at least four years for the bank to earn back based on average usage.
The benefits of Apple Card, including no fees and a competitive interest rate range for comparable cards, leads Nomura to believe "The Apple Card portfolio may generate lower revenues and face higher loss content relative to the industry average."
The policy of Goldman Sachs approving as many customers as quickly as possible, including those with low "subprime" credit scores can also count against the bank's ability to earn revenue over the years. Customers with FICO scores below 660, generally considered to be the level for "subprime" financial products, have been accepted for the service, even in its preview state.
Further making the future uncertain for Goldman Sachs is the prospect of a recession, with warnings on Wednesday of potentially higher loan losses for banks and lower profit margins causing bank stocks to plunge. Nomura believes Apple Card is "highly sensitive" to rising net charge offs, with Goldman Sachs losing money if losses reach around 8%.
The four-year period to make a profit is a major problem, as Nomura advised credit card issuers tend to experience peak losses on credit card loans two years after they originate. Goldman's lack of "historical data and experience that lenders obtain when underwriting through a credit cycle" will also hurt the bank, but over time it should improve.
As for the next move, it is speculated Goldman and Apple could offer a debit card to go alongside the credit card in the future, as it would be likely customers would pay off their Apple Card balances via bank accounts, and it may be advantageous to do so from a debit account on the same platform.
Debit cards are also less of a risk for financial services, and generated $15 billion in revenue for US banks in 2018 alone.
To set itself up for Apple Card, Goldman Sachs has already spent considerable sums preparing itself for the influx of consumers, including approximately $275 million from the start of 2019 until mid-July on public-facing initiatives including Apple's credit card and the bank's Marcus savings and loans service, and $1.3 billion on consumer services in general. According to Nomura, the bank may not necessarily see a profit from the Apple Card enterprise anytime soon.
In an investor note seen by CNBC, it is believed Goldman Sachs is spending in the order of $350 to acquire each user. Nomura believes that this is an outlay that will take at least four years for the bank to earn back based on average usage.
The benefits of Apple Card, including no fees and a competitive interest rate range for comparable cards, leads Nomura to believe "The Apple Card portfolio may generate lower revenues and face higher loss content relative to the industry average."
The policy of Goldman Sachs approving as many customers as quickly as possible, including those with low "subprime" credit scores can also count against the bank's ability to earn revenue over the years. Customers with FICO scores below 660, generally considered to be the level for "subprime" financial products, have been accepted for the service, even in its preview state.
Further making the future uncertain for Goldman Sachs is the prospect of a recession, with warnings on Wednesday of potentially higher loan losses for banks and lower profit margins causing bank stocks to plunge. Nomura believes Apple Card is "highly sensitive" to rising net charge offs, with Goldman Sachs losing money if losses reach around 8%.
The four-year period to make a profit is a major problem, as Nomura advised credit card issuers tend to experience peak losses on credit card loans two years after they originate. Goldman's lack of "historical data and experience that lenders obtain when underwriting through a credit cycle" will also hurt the bank, but over time it should improve.
As for the next move, it is speculated Goldman and Apple could offer a debit card to go alongside the credit card in the future, as it would be likely customers would pay off their Apple Card balances via bank accounts, and it may be advantageous to do so from a debit account on the same platform.
Debit cards are also less of a risk for financial services, and generated $15 billion in revenue for US banks in 2018 alone.
Comments
This $350 estimate tells me this analyst does not know WTF he is talking about
No thanks.
I crave most things Apple, but my existing bank credit card pays 2% cash back on all purchases. The Apple Card only pays 2% when using Apple Pay.
The Apple Card pays 3% on purchases made from Apple, but Apple charges me 8.25% sales tax. I buy most of my gear from Apple Authorized Resellers that don't charge me sales tax and often sell for less than Apple.
1) Extremely secure. There is no fixed card number, and if the physical card is used and a card skimmer or waiter steals your card number and pin, a number can be created instantly. So there is no interruption in use of the card.
2) No Tracking. You are not identified by the retailer by name or by card number. They only receive meta-data, they cannot track you (unless you want them to by signing up for some "deal" in which you have control over what information you give them)
3) Having instant info on spending is very handy, and provides for instant recognition if charges are incorrect, thus allowing for immediate corrections.
4) Reasonable interest rate (mine was a high limit with a 12.99% interest rate). Not a big deal of me as I pay off my balance every month.
5) Complete control over payments. I simply set mine up to auto pay from my bank at the end of each month. I don't incur any interest charges and I'm sent notifications well in advance so I can balance my bank statements.
6) Very detailed (and very Apple designed) infographics on spending by category and retailer. Also the info on the retailer is in plain english with business name, address, map, and contact info. Very handy for looking back at what I purchased and from whom.
7) There are no fees, and no late fees, or currency fees.
8) Ties to my Apple Cash account, and of course there is the instant cash back features
9) So far so good, I've made a couple of transactions and set up auto pay. I will evaluate how this works for me (about 65% of all retailers in the US now accept Apple Pay/Card) to see if this is something I want to use long term. But I know from experience that Apple Pay works extremely well and fast at checkout, especially using my Watch, so all of my Apple Pay will be done using this card going forward.
10) Longer term I can see using this card (or something like it) to manage all of my payments (retail purchases, mortgage, other credit card balances (not available now), utilizes etc, etc) from a single source while I am mobile.
The costs you're referencing have nothing to do with Goldman.
If online shopping adds Apple Pay (to get 2%) it'll help great deal
For the foreign-transaction-fees - my experience is - that the exchange rate provided by credit-card (or banks) is far more important than than 1% transaction fee
My Chase card has excellent rates - thought they charge 1% - but I'm still ahead overall instead of using Debit card - or simply converting currency to local...
Here's mine: We'll hear from Tim Cook in 10 weeks, when he'll confirm that the card has taken off like a rocket; like no other card, ever.
That doesn’t mean I’ll use it for everything, of course.
The interest rate is quite poor (24% for good credit), but I don’t plan to carry a balance.