How the Apple-Goldman Sachs relationship became an unhappy marriage

Posted:
in AAPL Investors edited July 2023

Apple's relationship with Goldman Sachs led to the creation of the wildly successful Apple Card, but post-launch friction and a change in priorities has crashed the relationship into the rocks.




Apple and Goldman Sachs have an extensive history together, with the two inevitably coming up with the Apple Card, as part of a wave of financial products that the two work together on. However, the working relationship has soured over the years, with Goldman reconsidering its association with Apple.

A profile of the relationship by The Information tells of how the alliance deteriorated over four years, to a level where the financial giant wants to extract itself from the iPhone maker, and away from consumer cards in general.

Prelaunch jitters



The development of Apple Card was difficult for many reasons, not least because of a difference in culture between the public-facing Apple and the New York and regulatory-focused Goldman. Executives were apparently unprepared for Apple's focus on technology and the product.

In 2019, during its development, Apple engineers weren't happy about using a physical card, with Apple also not keen on dealing with rules and obligations like using the Mastercard logo on the card design. Goldman also wanted to use its Marcus consumer brand on the card, but that was nixed.

Apple also came up with ideas that were not possible due to financial regulations, such as lining up billing statements with the calendar month. Cashback rewards were intended to be put directly into accounts, but due to batch processing and Goldman's use of an external processing vendor with little incentive to modernize, it resulted in Daily Cash being a work-around.

Post-launch friction



After launch, Apple and Goldman had to deal with claims of gender bias, which resulted in financial regulators investigating and deeming Goldman to have done nothing wrong. Goldman apparently didn't intend the discrimination, and was concerned about bad press and predatory accusations.

Further probes have followed over its handling of consumer card customers. It also had to deal with Consumer Financial Protection Bureau complaints over fraud and statement issues, and other regulatory probes.



There was also a problem with signups, as Goldman was asked by Apple to have the infrastructure to support 5 million users in the first year. A sign-up form for interested customers led Apple to revise the figure to 10 million, which meant Goldman had to increase its investment.

Only 3 million cardholders signed up in the first year.

Lack of profit -- for Goldman Sachs



The entire operation was costly for Goldman, to a considerable level. Apple Card was apparently responsible for at least $1 billion in pre-tax losses at Goldman between 2021 and 2022.

For Goldman, the deal is also very low-profit, as it doesn't take a cut of interchange fees paid by merchants for transactions. The lack of other fees also limits Goldman's other revenue sources from the operation, unlike other cards that include late or annual fees.

"No commercial bank that's experienced in the credit card business is going to give Apple the same terms as Goldman did," said Nilson Report publisher and payments industry expert David Robertson.

Contractually stuck



One of the big problems for Goldman Sachs is that it struck a deal with Apple at a time when interest rates were low and the economy wasn't harmed by COVID. There was also the prospect of expanding further into consumer finance products, which seemed lucrative at the time.

After what was described by Goldman CEO David Solomon as "the most successful credit card launch ever," Goldman and Apple agreed to maintain their contract until the end of the decade.

A few months after that agreement, and Goldman is keen to get out of the situation, except that it can't easily do so.

For Goldman to escape the agreement, it has to somehow find a partner for Apple that Apple approves of, which is a tough task. Report sources say that few would agree to Apple's terms, including being stuck running on the Mastercard network until at least 2026.

Apple could find partners elsewhere, but firms like American Express don't want to be the lesser partner in a card partnership. The tough terms Apple requires makes finding someone to take over, let alone the low-revenue no-fee structure of the cards.

In lieu of a potential suitor, Apple could potentially go it alone, sources say, with a virtually invisible partner that's out of view of consumers.

Read on AppleInsider

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Comments

  • Reply 1 of 23
    "In lieu of a potential suitor, Apple could potentially go it alone, sources say, with a virtually invisible partner that's out of view of consumers. "

    For 99% of potential Apple Card customers (who do not include the people that read AI), Goldman is certainly invisible *before* they sign up, and even after sign up they're *way* in the background.


    FileMakerFellergatorguywatto_cobralolliverjony0
  • Reply 2 of 23
    ilarynxilarynx Posts: 88member
    I bought a 3rd MacBook in 2 months today (students still in house). Went to put today's MB on the Apple Card for the Goldman Sachs 12mo same as cash. Constant errors. After an hour in the store and on text with GS Customer nonSupport and getting bounced to 7 different "specialists" we called only to find out that GS was experiencing a "glitch" and couldn't process any transactions. 

    Either they created the glitch themselves or are shamefully incompetent. Maybe a mix of both?
    FileMakerFellerwatto_cobrawilliamlondonlolliverbyronlAlex1N
  • Reply 3 of 23
    macguimacgui Posts: 2,345member
    ilarynx said:
    Either they created the glitch themselves or are shamefully incompetent. Maybe a mix of both?
    Maybe neither? Maybe just an occasional glitch that can happen in a non-perfect world?

    Having had hundreds of transactions with the Apple Card and 0 actual problems and a couple of misunderstandings on my part quickly cleared up by Apple Card "specialists", I've no indication that either scenario is likely. 


    FileMakerFellerwatto_cobrawilliamlondonpscooter63byronlAlex1Njony0
  • Reply 4 of 23
    mayflymayfly Posts: 385member
    In the world of finance, Goldman Sachs,
    A firm so renowned for its stacks,
    With each profitable deal,
    They continue to reel,
    My heart weeps for their meager tax hacks.
    Alex_VBiCCbyronlAlex1N
  • Reply 5 of 23

    "No commercial bank that's experienced in the credit card business is going to give Apple the same terms as Goldman did," said Nilson Report publisher and payments industry expert David Robertson.

    So Apple hunted for a desperate provider, just like with AT&T and the iPhone. I'm sure Apple emphasised the benefits AT&T accrued while selling this idea to GS. I'm also sure GS didn't look at the troubles AT&T had after launch (such as the massive demand for data that stressed their network and required bringing forward planned infrastructure enhancements).

    It really sounds like GS was looking for an easy profit-making venture, got surprised when Apple told them it was going to take hard work and decided that they didn't like the sound of that.
    watto_cobraAlex1Njony0
  • Reply 6 of 23
    mpantonempantone Posts: 2,027member
    "In lieu of a potential suitor, Apple could potentially go it alone, sources say, with a virtually invisible partner that's out of view of consumers. "

    For 99% of potential Apple Card customers (who do not include the people that read AI), Goldman is certainly invisible *before* they sign up, and even after sign up they're *way* in the background.


    Until you need to interact with Apple Card customer service. Then Goldman Sachs rears its ugly head. Due to billing problems, I spent an hour on the phone with GS just a month after the card launched. It was a freaking sheet show. So I stopped using the card and have never touched it again.

    Congratulations Goldman Sachs for completely bungling a new customer relationship. Good job.

    Now they are reaping the rewards of their competence and capabilities.

    My lil' wimpy credit union offers a *FAR* better credit card experience than Big Strong Goldman Suuxxs. Maybe it starts with caring a bit more.
    edited July 2023 watto_cobrailarynxvtvitaFileMakerFellerbyronlAlex1Njony0
  • Reply 7 of 23
    tyler82tyler82 Posts: 1,095member
    How many trillion$ did Goldman Sachs steal... I mean, "borrow," from us taxpayers?
    watto_cobralordjohnwhorfinlollivertokyojimujony0
  • Reply 8 of 23
    iOS_Guy80iOS_Guy80 Posts: 801member
    It would be marvelous if Apple would take over the entire wallet app services: credit card, cash card and savings account. 
    watto_cobrailarynxjas99lollivervtvitaAniMillbyronlAlex1Njony0
  • Reply 9 of 23
    ilarynxilarynx Posts: 88member
    macgui said:
    ilarynx said:
    Either they created the glitch themselves or are shamefully incompetent. Maybe a mix of both?
    Maybe neither? Maybe just an occasional glitch that can happen in a non-perfect world?

    Having had hundreds of transactions with the Apple Card and 0 actual problems and a couple of misunderstandings on my part quickly cleared up by Apple Card "specialists", I've no indication that either scenario is likely. 


    Probably both, and more. My 1st hand experience  today  indicates a royal Goldman Sachs F-up. 

    Below is an excerpt of the text "customer support" text initiated by the Apple sales person in the store. Attached is the full PDF text string. For anyone thinking this represents good customer support but just a bit of a non-perfect glitch, would probably look up to the movie "Chernobyl" as an exemplary way to handle a "glitch". 

    Getting bounced between over half a dozen different "specialists" in a little over 30min is not some "occasional glitch" - glitch or not, THAT is a royal failure on the part of Goldman Sachs Customer Service. 

    A subsequent 10-min phone call to GS elicited the fact that they were experiencing technical problems which were preventing transactions. WHY the 7 people on the GS CS text system couldn't/wouldn't share that fact - and save me an hour of wasted time - is a FAILURE of internal communications. 

    The Apple sales person noted that about 1/4 of the problems he sees with the Apple Card were similar to mine. 

    The Apple sales person apologized several times for the poor (nonexistent) customer service provided which delayed me for over an hour in the store. He was exasperated as well.

    After completing the transaction (without the Goldman Sachs installment plan), the Apple sales person apologized 5 times before I left. We were both frustrated in the process but laughing at the absurdity of it. 

    Goldman Sachs are a bunch of overpaid incompetent clowns. The Keystone Cops run a smoother operation. 

    QED



    edited July 2023 vtvitawilliamlondonFileMakerFellerbyronlAlex1N
  • Reply 10 of 23
    eriamjheriamjh Posts: 1,621member
    I was about to comment that GS didn’t read the contract carefully, but the interest rate hike is probably what is mostly killing them.

    These banks make billions screwing people over with fees and charges and interest.  Take away that opportunity and they get as mad.

    Boo-hoo, GS.
    ilarynxlordjohnwhorfinjas99Alex1Njony0
  • Reply 11 of 23
    entropysentropys Posts: 4,135member
    I really wouldn’t want American Express taking it over. I want it to work with Mastercard or visa.
    AE is almost a non starter in most countries.
    edited July 2023 lordjohnwhorfinpscooter63williamlondonAlex1N
  • Reply 12 of 23
    mayfly said:
    In the world of finance, Goldman Sachs,
    A firm so renowned for its stacks,
    With each profitable deal,
    They continue to reel,
    My heart weeps for their meager tax hacks.

    When a plane flies, 
    it may crash and die,
    When the profiteers at Goldman Sachs fold,
    Apple will stand strong and be bold, and gold,
    When Apple uses a weak Bank,
    The Bank will be hit with the force of a Tank.

    Apple can Manhandle those people in a second.
    mayflywilliamlondon
  • Reply 13 of 23
    davgregdavgreg Posts: 1,031member
    It seems the best outcome would be Apple setting up an independent subsidiary bank like company - not facing the public - that handled what is currently done by Goldman.

    Pretty sure Apple could roll out something like that with two classes of shares - super shares held by Apple and a B class held by the public. At roll out the B shares could be distributed to Apple shareholders of record that they could then hold or sell on the open market.

    The end result would be a stand alone banking type business that was apart from, but controlled by the company.

    Apple certainly has the cash to be able to set up a large virtual bank and could then customize the experience to whatever level is allowed by law.
    FileMakerFellerAlex1N
  • Reply 14 of 23
    vtvitavtvita Posts: 25member
    My experience with the  (Apple branded) Goldman-Sachs credit card is just miserable.
    williamlondon
  • Reply 15 of 23
    AniMillAniMill Posts: 153member
    iOS_Guy80 said:
    It would be marvelous if Apple would take over the entire wallet app services: credit card, cash card and savings account. 
    It’s in the cards (pun intended). With their massive liquidity of hundreds of billions they could form their own bank. 
    edited July 2023
  • Reply 16 of 23
    2morrow2morrow Posts: 20member
    Your post got me thinking… do credit unions all do this on their own, or do they partner with someone? If they do partner for customer service and such, could Apple not use a credit union as a partner?

    mpantone said:
    "In lieu of a potential suitor, Apple could potentially go it alone, sources say, with a virtually invisible partner that's out of view of consumers. "

    For 99% of potential Apple Card customers (who do not include the people that read AI), Goldman is certainly invisible *before* they sign up, and even after sign up they're *way* in the background.


    Until you need to interact with Apple Card customer service. Then Goldman Sachs rears its ugly head. Due to billing problems, I spent an hour on the phone with GS just a month after the card launched. It was a freaking sheet show. So I stopped using the card and have never touched it again.

    Congratulations Goldman Sachs for completely bungling a new customer relationship. Good job.

    Now they are reaping the rewards of their competence and capabilities.

    My lil' wimpy credit union offers a *FAR* better credit card experience than Big Strong Goldman Suuxxs. Maybe it starts with caring a bit more.

    williamlondon
  • Reply 17 of 23
    chadbagchadbag Posts: 1,995member
    Early on I had a few issues but it’s been mostly smooth sailing since with Apple Card.  I mostly use it for Apple products and Apple Pay online.  I use my Chase cards for most things.  

    When I’m Japan I also use it to load onto my virtual Suica card in Apple Pay since Suica doesn’t work with Visa.  

    I wonder if one of the Utah based industrial banks (where a lot of big customers put their specialty concierge financing arms) would work for this?

    im pretty sure The other big consumer card companies with rewards cards get a share of the interchange fees.  I wonder why GS agreed to a deal not to. (Chase, C1, Citi etc). 

    Apple Card was sure easy to share with my kids in Apple Pay so they could load their Suica virtual cards easily on our last trip to Japan. 
    williamlondonFileMakerFellertokyojimu
  • Reply 18 of 23
    snookiesnookie Posts: 139member

    "No commercial bank that's experienced in the credit card business is going to give Apple the same terms as Goldman did," said Nilson Report publisher and payments industry expert David Robertson.

    So Apple hunted for a desperate provider, just like with AT&T and the iPhone. I'm sure Apple emphasised the benefits AT&T accrued while selling this idea to GS. I'm also sure GS didn't look at the troubles AT&T had after launch (such as the massive demand for data that stressed their network and required bringing forward planned infrastructure enhancements).

    It really sounds like GS was looking for an easy profit-making venture, got surprised when Apple told them it was going to take hard work and decided that they didn't like the sound of that.
    Neither AT&T or Goldman were desperate.  Apple wasn't either.  Be glad Apple didn't allow the others to monkey with the iPhone like they do all other hardware providers.Slapping their own interfaces, logos, and apps on the iPhone.  Goldman was just greedy and stupid.  Almost all of the card services are outsourced by them and i can make a pretty good guess as to who.  I'm a Director of IT Architecture in the financial industry and have worked at Amex and many big banks.  I also remember the actual history of the iPhone and AT&T.  Anyone can google that and find out what actually happened.
    Alex1N
  • Reply 19 of 23
    snookiesnookie Posts: 139member
    entropys said:
    I really wouldn’t want American Express taking it over. I want it to work with Mastercard or visa.
    AE is almost a non starter in most countries.
    Incorrect.  Amex makes 65% of their revenue outside the U.S.  I used to work there.  But it does limit who will take the card.
    williamlondonAlex1N
  • Reply 20 of 23
    snookiesnookie Posts: 139member
    chadbag said:

    im pretty sure The other big consumer card companies with rewards cards get a share of the interchange fees.  I wonder why GS agreed to a deal not to. (Chase, C1, Citi etc). 

    Apple Card was sure easy to share with my kids in Apple Pay so they could load their Suica virtual cards easily on our last trip to Japan. 
    You don't get interchange fees if you don't run the card system.  Since they outsourced it they don't have a choice.  Some financial institutions run their own credit card and debt card systems so they can get interchange.
    edited July 2023 chadbagFileMakerFellerAlex1N
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