As we are approaching the end of another year, Earth completes one more trip around the sun. Conventionally, the culmination of a year and the genesis of another warrant the strengthening of already existing relationships or severing of weighing ones. While most look to preserve what they hold valuable, Apple has decided to end the credit card partnership with Goldman Sachs, with no successor named.
The Apple and Goldman Sachs partnership
In August 2019, the two giants in their respective fields had a plan. Their collaboration was considered the beginning of a global fintech goliath. One that could potentially shake the world. According to Goldman Sachs, Apple partnered with Goldman Sachs, to launch what was then considered a groundbreaking credit card, the Apple Card. This innovative card was designed to empower consumers to lead healthier financial lives, aiming to transform the traditional credit card experience.
As Goldman Sachs further explains, the Apple Card distinguished itself with features such as zero fees, daily cash back, and seamless integration into Apple’s mobile devices. It set a new standard for privacy, security, and transparency in credit cards, enabling consumers to easily analyse their spending patterns. Users were also given the ability to calculate potential interest savings by paying off different portions of their balances. Goldman Sachs, the card’s issuer, was in charge of overseeing underwriting, customer service, the underlying platform, and all aspects related to regulatory compliance through Goldman Sachs Bank USA.
On Apple’s part, this was read as an attempt to introduce a credit card fee for iPhone purchases, marking a shift in its revenue strategy. The move was considered a part of Apple’s broader effort to increase revenue streams beyond its traditional product offerings, recognizing the competitive landscape in the payments sector with challenges from both financial institutions and tech startups. Simultaneously, Goldman Sachs, the card’s issuer, also took this chance to actively explore opportunities to expand its presence in the digital payments space. A move that was made in the hope of complementing the bank’s objective of experimenting with diverse turfs for its revenue streams, moving away from traditional areas like trading and investment banking.
The partnership falls apart
In November 2023, the plan that they had disintegrated with Apple deciding to pull the plug. This was after a few years of sharing a murky relationship with many downs where Goldman Sachs was not faring well while Apple was thriving. Goldman Sachs’ collection of businesses, known as Platform Solutions, incurred pre-tax losses exceeding $1.2 billion in the first nine months of 2022, primarily attributed to loan-loss provisions. The major contributing factor to these losses was reportedly tied to the Apple Card.
This financial performance marked a shift from the previously disclosed figures, where Goldman had reported $1.3 billion in losses from the inception through mid-2019 in its consumer business. Back then, executives within Platform Solutions expressed optimism, where they hoped that the consumer division might achieve breakeven by 2025, although the initial target was set for the end of 2022. However, 2023 saw no positive turn. The substantial investment made by Goldman Sachs in launching the Apple Card and other consumer services is noteworthy. In 2019, a report revealed that the bank spent around $1.3 billion on its consumer services, with an estimated cost of approximately $350 per new Apple Card customer acquisition.
In an interesting turn of events, while Goldman Sachs was speculating to call it quits with Apple, it was the latter who got the first word in and served the divorce papers. A report from The Wall Street Journal indicates that Apple has submitted a proposal to Goldman Sachs to terminate their partnership, covering Apple Card and Apple Savings, within the next 12 to 15 months. The proposal suggests a desire to end the partnership, citing issues that have persisted since its inception.
Speculation surrounds potential new partners, with discussions reportedly held with American Express and Synchrony Financial expressing interest in taking over Apple Card. The proposed exit is yet to be approved, and until an official announcement is made, Apple Card and Apple Savings customers are advised to proceed as usual. The potential impact on Apple Card holders, including rates, fees, and other operations, remains uncertain. It is expected that Apple will strive to maintain a level of control similar to its arrangement with Goldman Sachs, which may have contributed to the current situation.
While the process itself will take a considerably long time, mainly because this joint venture was set in stone for at least half a decade more, this is almost like a get-out-of-jail-free card for Goldman Sachs considering how they have been yearning to sidle out of what was considered an undesired situation for them. Also if this proposition made by Apple were to fall through, it would mark the demise of one of the highest-profile partnerships that had materialised between a giant bank and a tech mogul.
(Sandunlekha Ekanayake)