Apple surprised everyone when it announced in February 2019 that Goldman Sachs, the global investment bank, would issue the Apple Card. The card launched in August 2019 and offered some unusual application features, like being able to find out your credit line and approval status without the bank doing a “hard-pull” of an applicant’s credit report.
The Apple Card has no annual fee and provides 1-3% cash back on purchases. It also allows cardholders to pay for large purchases from Apple with 0% interest. I picked up the Apple Card when we purchased an iPhone.
Winning the bidding war to issue The Apple Card was part of Goldman Sachs strategy to become a player in the consumer lending market. They wanted to be like JP Morgan Chase, but to do that they needed more customers.
The first move was in 2016 when Goldman Sachs launched Marcus, an online retail bank. It’s like Chime but not as popular. Marcus expanded rapidly taking advantage of the massive profits of its parent company. In 2020, MarcusPay, the consumer loan part of Marcus, partnered with JetBlue to offer pay-over-time financing for plane tickets and JetBlue Vacation packages.
Marcus was expanding and the Apple Card kept adding new applicants but there were problems at the consumer lending division of Goldman Sachs. Multiple corporate reorganizations and the departure of several of the key executives responsible for these deals were the canaries in the coal mine. It didn’t take long before Goldman Sachs had to put on paper the losses being racked up at its consumer bank side hustle.
In October 2022, financial industry analysts started asking the CEO hard questions about the consumer business during quarterly conference calls. At this time, the bank announced it was no longer “seeking to acquire customers on a mass scale.” Uh-oh.
It only took until February 2023 for Goldman Sachs CEO David Solomon to announce that the bank was considering “strategic alternatives” for its consumer arm which had lost over 3 billion dollars since 2020. Yes, they flushed 3 billion dollars down the drain.
We don’t have to worry about Goldman Sachs going out of business. Even with the disastrous results from its consumer arm, including a $470 million loss related to a partial sale of the Marcus loans portfolio, Goldman reported net earnings of $3.23 billion, or $8.79 per share in the first quarter.
However, banks don’t like to lose money and there’s another product that’s popular but a money loser. The Apple Card.
In January 2023, Goldman Sachs disclosed that the bank has lost a billion dollars on the Apple Card deal.
The Wall Street Journal and CNBC have both reported that Goldman is “looking for a way out” of the Apple Card and is talking with American Express about a deal.
There’s no comment from Goldman Sachs or AMEX about the possible deal. Apple would need to approve any deal involving the Apple Card. The tech behemoth declined to comment on the matter, but reporting says they are aware of the talks between the two banks.
Will the Apple Card become an AMEX product? Will that change the card offerings? Will the Apple Card count towards the AMEX 5-card limit?
There are more things that we don’t know than what we do know. However, we can be sure that Goldman Sachs wants out of the consumer banking space and they’re looking to get there sooner than later.
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