The Goldman Sachs Apple Card hit the market with a frenzy of a Silicon Valley startup. Apple announced the “simplicity of Apple” and that the Apple Card completely reinvented the credit card by eliminating fees and promising tools to help users pay less interest. The Apple Card did not change the world of credit cards, that is for sure.
Daily Cash was announced as a leading-edge feature, but those that receive daily bonuses find themselves scratching their heads about what to do about $0.17. In retrospect, waiting for the month to end makes more sense. While the daily cash rewards sounded great, the typical user, who might link their Words With Friends account or their McDonald’s purchases, just amounted to pennies a day. For those with a Bank of America Cash Rewards, Capital One Venture card, Chase Freedom Card, Citi Custom Cash Card, or Discover it® card, waiting for the billing cycle to end is not so bad.
If you read Goldman Sachs’ Terms and Conditions, you will find baseline rates between 15.24% and 26.25%. Although there is no disclosure requirement on how the underwriting curve plots out against the rates, it compares well when bench marked against a Wells Fargo Active Cash Visa Card that discloses a range of 19.49%-29.49%, or a Chase Visa Signature card, at 19.24% to 28.99%. (read more about credit card terms and conditions in the U.S. here).
After reporting high credit losses and shifting their Goldman credit group reporting lines, the firm is trying to figure out if getting into credit cards was a good idea in the first place. CNBC reported that Goldman Sachs’ intentions to begin credit card issuance without a co-brand partner have now been shuttered. So far, that means Goldman Sachs will continue with the Apple Card, who knows about the GM card, and likely shutter their intent on the T-Mobile Card. As a result, you will not see a Goldman Sachs branded card addressing the U.S. market, as American Express, Capital One, Chase, Discover, and U.S. Bank do today.
- Goldman Sachs has dropped plans to develop a Goldman-branded credit card for retail customers, another casualty of the firm’s strategic pivot, CNBC has learned.
- Not long ago, CEO David Solomon told analysts that the bank was developing its card, which would’ve used the platform Goldman created for its Apple Card partnership.
- It was part of Solomon’s ambitious vision for serving everyday Americans by stretching beyond the core competencies of the 154-year-old investment bank.
Getting into Credit Cards Sounds Easy, But…
Credit card issuance sounds easy but requires billions in investment capital and a culture that understands the consumer. People use credit cards for convenience, but the card becomes a critical household engagement tool in many cases.
It takes more than corporate cache’ to run a card business. You can ask AT&T about that. After their 1990 launch, the AT&T Universal card floundered, and Citi came to the rescue with a portfolio acquisition. That is not the only example of a card program failure, but it is a historical parallel that non-banks need to remember.
Credit cards are about merchant acceptance and the assumption of risk- only some will repay you.
The Big Question: What Will Goldman Sachs Do?
About everyone loves Apple. I surely do and remember getting an Apple II in 1977, then my first Apple Mac in 1984 with 128k memory. Now on my fifth iPhone, I expect to have a relationship with Apple for the rest of my life. With an estimated 56% market share in the United States, you can expect card issuers to drool at the opportunity of a co-brand relationship. But remember that Apple understands the value of a partnership, and in years gone by, canceled their relationship with Barclaycard.
The next step remains to be seen. Will Goldman put the Apple cobrand out for sale? Will a top payment brand step in with a business model that “might not change the world” but instead fits into a business model that benefits the cobrand partners?
Either way, the Apple fumble will not tank Goldman and its $125 billion market capitalization, but the takeaway is that sticking to their investment banking knitting is the way to go.
Overview by Brian Riley, Director, Credit Advisory Service at Javelin Strategy & Research.