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Apple and Goldman Sachs have had a deep connection through their Apple Card venture, but it seems this marriage isn’t as blissful as one might think. The Wall Street Journal has revealed that Goldman Sachs is currently in discussions with American Express to potentially transfer its partnership with Apple. This comes after the financial giant admitted to losing a staggering $1 billion on the Apple Card deal since its inception in 2020.
The report sheds light on Goldman’s attempts to offload its businesses and credit-card partnership to Amex, as it significantly scales back its efforts to establish a stronger presence in the consumer finance industry. However, sources familiar with the conversations have cautioned that a deal with American Express is not yet assured and might take some time to materialize. Ultimately, the decision rests with Apple, as the tech company would have to agree to the transfer. These talks have been ongoing for months, raising questions about the stability of the partnership.
For those closely following the Apple-Goldman relationship, this news might not come as a complete surprise, but it certainly contradicts recent statements made by Goldman Sachs. In October of the previous year, CEO David Solomon confidently declared that the partnership with Apple had been extended through 2029. However, by January, the truth of the financial losses was exposed, with Goldman Sachs revealing that it had already lost over $1 billion on the Apple Card deal since its inception. Despite this revelation, the bank claimed it remained “committed” to the partnership, citing vast opportunities for growth.
The discrepancy between the public statements and behind-the-scenes discussions leaves observers wondering about Goldman Sachs’ true commitment to the Apple Card partnership. The uncertainty surrounding the situation raises concerns about the long-term viability of this union.
So, how did Goldman Sachs end up losing so much money on the Apple Card venture? One significant factor lies in Apple Card’s unique approach to fees. Unlike other credit card companies that impose various charges, Apple Card refrains from fees, apart from interest. This move enhances its appeal to users but can potentially lead to lower profitability for the issuer, in this case, Goldman Sachs.
Additionally, Goldman Sachs adopted a more lenient approach to approving customers for Apple Card, leading to a higher net charge-off rate compared to industry peers like Chase and Bank of America. The charge-off rate, which indicates debts that banks don’t expect to be repaid, stands at a concerning 2.93% for Goldman, double that of its competitors. Moreover, more than a quarter of Goldman’s card loans have been extended to individuals with FICO scores below 660, highlighting a riskier customer base compared to other banks.
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Recovering charge-off debt has proven to be a challenge for Goldman Sachs, as it appears to be less aggressive and successful than its peers in this regard. Interest, one of the most lucrative sources of income for credit card companies, becomes uncollectible if customers stop paying their bills entirely, creating further financial strain for the issuer.
Despite these losses and potential partnership discussions with American Express, Goldman Sachs has recently expanded its collaboration with Apple, launching the Apple Card Savings Account. Additionally, the bank serves as the issuer of the Mastercard payment credential used for Apple Pay Later purchases.
While Goldman Sachs is navigating the complexities of its Apple Card partnership, Apple has reportedly been exploring opportunities to bolster its financial services under “Project Breakout.” The initiative aims to reduce the company’s reliance on partners like Goldman Sachs, bringing more finance technology in-house.
The future of the Apple Card-Goldman Sachs partnership remains uncertain, with potential implications for both companies and their customers. As talks with American Express continue, only time will tell whether this relationship can be salvaged or if it’s truly on the brink of dissolution.