Apple Pulls Plug On Goldman Credit-Card Partnership (wsj.com) 41
schwit1 shares a report from the Wall Street Journal: Apple is pulling the plug on its credit-card partnership with Goldman Sachs (source paywalled; alternative source), the final nail in the coffin of the Wall Street bank's bid to expand into consumer lending. The tech giant recently sent a proposal to Goldman to exit from the contract in the next roughly 12 to 15 months, according to people briefed on the matter. The exit would cover their entire consumer partnership, including the credit card the companies launched in 2019 and the savings account rolled out this year. It couldn't be learned whether Apple has already lined up a new issuer for the card.
The move would mark a swift about-face for a program that just over a year ago was extended through 2029 and was intended to serve as a pillar of Goldman's main-street ambitions. The retreat began around the end of last year after Goldman lost billions of dollars trying to build out a full-service consumer operation. By early this year, Goldman had told Apple that it would be looking to offload the partnership. Typically the merchant -- in this case Apple -- plays a controlling role in such partnerships. schwit1 adds: "The customer satisfaction rate is high but Goldman's acquisition costs were reportedly astronomical -- something like $350 per cardholder."
The move would mark a swift about-face for a program that just over a year ago was extended through 2029 and was intended to serve as a pillar of Goldman's main-street ambitions. The retreat began around the end of last year after Goldman lost billions of dollars trying to build out a full-service consumer operation. By early this year, Goldman had told Apple that it would be looking to offload the partnership. Typically the merchant -- in this case Apple -- plays a controlling role in such partnerships. schwit1 adds: "The customer satisfaction rate is high but Goldman's acquisition costs were reportedly astronomical -- something like $350 per cardholder."
Goldman's said they were pullling the partnership. (Score:4, Informative)
Re:Goldman's said they were pullling the partnersh (Score:4, Interesting)
Eh..... I'm kind of surpised apple was even in that partnership. With the absolutely gobsmacking amounts of money Apple just has lying about (Apples always had a sligthly unusual thing where they like to have a very large sum (like hundreds of bil) of cash at hand rather than tied up in investments and the like as a war chest. Unusual , but not unwise, apple is more or less immortal at this point, it could close its door and not sell another product or service for a decade without even laying off staff, if it wanted to for some reason.
The other thing that makes Apple fairly much unkillable is its almost obsessive aversion to dependencies on other companies.It prefers to do almost everything itself.
So you add those two facts together, its mindboggling cash reserves and its huge preference not to engage in partnerships, and you get the question why doesnt apple just do this stuff itself? Like, if I want to buy a mac, why not have apple themselves "loan" the money to me for it? Then they get to keep the interest, or even choose not to charge (much) interest and make purchasing a mac a much more enticing option.
Honestly I think Apple might have been asking itself the same question.
Re:Goldman's said they were pullling the partnersh (Score:5, Insightful)
Two reasons, charging rent to third parties for access to their ecosystem is a little less obvious a monopoly than doing everything first party. Second reason, it allows them to divert blame.
For google search they let Google shoulder theblame of invasion of privacy wjile they can still profit. For financial services they could experiment and build up knowhow while Goldmann Sachs took all the blame for shitty service. Regardless of money and poaching, the first few years would have been a shitshow. Now it was GS's shitshow.
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Like, if I want to buy a mac, why not have apple themselves "loan" the money to me for it? Then they get to keep the interest, or even choose not to charge (much) interest and make purchasing a mac a much more enticing option.
That happens now. If you use the Apple Card you pay the sales tax up front, then the rest is divided into monthly payments for 12 or 24 months. No interest charge and you still get the 3% cash back.
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Isn't the apple card what this article is about though?
Maybe its different in the US (I'm australian. In here Latitude was the bank underwriting it and boy do they suck. I dont think apple work with them anymore after they got hacked, refused to do anything about it and got many peoples details, including mine, leaked)
Re:Goldman's said they were pullling the partnersh (Score:5, Interesting)
why doesnt apple just do this stuff itself?
Because banking regulations in America make it really hard to be a bank if your main business is something else.
Walmart tried and failed, then partnered with Capital One for the Walmart credit card (available as either MC or Visa).
Amazon partners with Chase.
Sears came closest with the Discover card but eventually failed for many reasons.
The Mastercard/Visa duopoly is extremely lucrative. They have the power to collect a 3% "tax" on everything bought with a card. They spend big on lobbyists, so don't expect anything to change.
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Sears' failure had nothing to do with Discover, except that they spun off a profitable business that could have helped keep them afloat a little longer. Also, Sears was profitably in the credit card business long before Discover, though I don't think they were a bank for those credit cards the way Discover is for its' own card.
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Let banking be boring and let's stop seeing the tools of transacting as a hype machine brimming with potential profit. ATM fees anyone? We'll take your
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They don't want the headache and the regulatory requirement that comes with being a tank.
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Indeed, Goldman got suckered in with the promise of big profits on a deal that heavily favoured Apple. The question is, what will happen to the Apple card now? Presumably nobody else will be dumb enough to agree to the same terms, so is the card dead or are the terms being significantly revised?
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The question is, what will happen to the Apple card now?
For months now, American Express [theverge.com] has been talked about as the replacement for Goldman Sachs.
It's a more natural fit. This was GS's first consumer partnership venture; AmEx are old hands at this.
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Amex is a terrible fit fort this. They understand this business very well, and that alone makes it a bad fit. Add in that Amex will want a profitable arrangement, and wll this will never be an Amex-Apple partnership.
And you may not know this, but Amex and Costco parted ways because Costco wanted them to lose more money than before.
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I doubt Apple will struggle with that; while it was always odd to me that the operation was centered around a MasterCard and not have the ability for off-network transactions now they have more experience in what works. There are a bunch of things that need to be improved with the program, but none of it is rocket science.
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I find it weird that Goldman got suckered on anything financial.
Goldman is one of those smartest-guy-in-the-room companies that usually sets things up to where they make money regardless of the outcome.
I find it hard to believe they went into a financial services deal with anyone that wasn't structured so that they always made money. I wonder if they were willing to give up points on the front end in order to make it up on the back end selling some new consumer lending expertise to other companies looking
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but lets make it like apple did it....
Yep, one of those "I broke up with her" stories.
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Apple has standards that probably rule out tacky stuff, I assert evidence free, so the only alternative is to get an aggregate lower quality of credit customer. I read this in the article. Apple wanted almost all people approved. You wouldn't lend mon
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Where did you hear otherwise? Because as far as I can tell, Goldman Sachs has not ever said publicly that they wanted to end it, but Apple did. Maybe you're watching too much TikTok?
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Goldman probably wasn't making enough money on the deal.
Apple probably had terms more favorable to them and not Goldman.
Mastercard&co are next (Score:3)
Consumer electronic ecosystem will be the most all encompassing market in history and absent government intervention Apple will have a total monopoly where they choose to be first party and have an ability to charge nearly arbitrary rent where they choose not to be (see Google search payments for a sign of things to come).
Now they are inhousing financial services, next is payment processing (project breakout), cars of course etc etc.
Not enough suckers (Score:5, Insightful)
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The skim on every transaction helps, for mastercard and visa any way (and in the future Apple).
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Credit card companies dont make any money on the money they lend you for 50 days. In fact they lose money when you take into account the cost of acquisation, cashback etc. They only make money when people borrow more than they can payoff every month. The late fees, interests and penalties are what make credit card companies profitable.
Nope. It is the 3% for Visa / Mastercard (5% for AmEx) additional fee that the CC processors charge ABOVE the purchase amount that makes credit cards very, very profitable. Ever wondered why the cash price for gas was (generally) lower than the credit card price? Because of this. Gas station operators have needed to do this because they operate at insanely thin margins at the best of times, and only the bigger chains can absorb the CC fee.
Interest and late fees: gravy and icing. The real money is the skim o
Re: Not enough suckers (Score:2)
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"How much of the merchant fee goes to the issuing banks?"
90%-95% of the transaction cost is the interchange fee that goes to the issuing bank: https://www.fool.com/the-ascen... [fool.com]
Re: Not enough suckers (Score:2)
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Re:Not enough suckers (Score:5, Informative)
Credit card companies dont make any money on the money they lend you for 50 days. In fact they lose money when you take into account the cost of acquisation, cashback etc. They only make money when people borrow more than they can payoff every month. The late fees, interests and penalties are what make credit card companies profitable. However people buying Apple stuff are generally richer than the general population. They dont mess up and carry balances on credit cards (unless its a zero % balance). So GS was paying all the acquisation costs but not making enough on interest and fees because Apple customers dont carry interest paying balances.
Not quite.
You're right that Goldman Sachs wasn't making money off the deal but wrong about how. Interest, late fees, and penalties do not make money for credit card companies. These are almost always losses as it takes time and resources to recoup and you will never get 100% of the balance back, let alone the balance and fees. Someone who isn't paying off their principal isn't likely to be paying the fees or interest off. So it remains in debt until the bank either closes and tries to recoup the money or the debtor tries to consolidate their debt (I.E. getting another loan to pay off the card). In both cases, you rarely recover the principal, let alone interest and costs.
What credit card companies want you to do is pay off the balance each month and keep using the card because that is where they make their money.
The banks and credit networks skim a little off each transaction. There are a minimum of 5 parties in each transaction. You -> Your Bank -> Credit Network (Visa/MC/AMEX) -> Merchants Bank -> Merchant. Each middle man taking a cut for themselves so the money the merchant receives is a few percent less than what is taken from your account/line of credit. Usually its 2-3% but higher end cards can easily be 6%. Even 6% may sound like pennies on a $20 transaction but they make it up on volume, consider how many billions get put through cards each month. This is where the banks make their money, from people using cards. They lose money from people continually in debt, the interest rates, fees and penalties (most notable of which is wrecking your credit score) are all there to keep people scared enough to pay it off each month.
In the case of Apple and Goldman Sachs, they were sharing the "your bank" portion of the amount skimmed from the transaction. For GS, there simply wasn't enough money being passed through and Apple were being a very demanding partner (diva level).
Your airline and store branded cards work the same way, with the issuing bank sharing their take from the transactions in exchange for branding. Delta made 10 billion from it's co-brand cards last year.
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There's supposedly a bad feedback mechanism with these merchant fees. Card issuers want to have the best bennies for their cards, but they fund them with merchant fees. Merchants end up raising prices to deal with the people who buy things at a price 3% less cut into their profits. So people not making credit card purchases are basically funding the whole thing because they're paying the increased prices merchants charge to offset losses on credit purchases.
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If you have an Amex branded card, you don't have an internetwork. And Amex will not actually have a bank involved until you pay your bill.
The You-> Your Bank step is usually the last step, it is usually You->Merchant->Acquirer->Credit Network->Issuer->Credit Network->Merchant->You and you get your purchase. Overall, if you are a 'step', it is usually seven steps or so. Banks get involved in the purchase transaction if they are an issuer or acquirer. Oh, and whey you pay your bill...
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You are both right.
VISA for example, being the middle men, makes their money purely off the fees:
https://finty.com/us/business-... [finty.com].
Specialty issuers like Comenity (seemingly) make money off partners (and possibly late fees / interest). They are one of the larger "OEMs", Synchrony being another:
https://financebuzz.com/what-i... [financebuzz.com]
Banks (seem to) lean more on interests, as their customers usually carry a relatively large balance:
https://www.nerdwallet.com/art... [nerdwallet.com].
So, it is a spectrum, going from interest (mostly)
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Credit card companies dont make any money on the money they lend you for 50 days. In fact they lose money when you take into account the cost of acquisation, cashback etc. They only make money when people borrow more than they can payoff every month. The late fees, interests and penalties are what make credit card companies profitable. However people buying Apple stuff are generally richer than the general population. They dont mess up and carry balances on credit cards (unless its a zero % balance). So GS was paying all the acquisation costs but not making enough on interest and fees because Apple customers dont carry interest paying balances.
Posting AC to avoid burning mode points.
As a person who both lives on their credit card, and pays it off every month, the question of "What's in it for them?" happens every so often. The answer is cash flow. While it is nice to sucker people into low easy payments for the rest of their lives, it can be overdone. They do need to carry enough to pay their bills.
So the ~5k I pay them every month counteracts the 28 dollars from the people who pay minimum.
So they get cash for their flow, and I get a 2% di
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Except .... not sure your assumption is correct here? I understand one of Sach's major "gripes" with Apple was over the fact Apple was pushing to approve so many customers for Apple Cards and credit to buy thing on the "12 months no interest" offers.
The people buying Apple stuff might be statistically "richer than the general population", but that doesn't mean they're all great with money-management or are even all that rich. A whole lot of long-time Apple fanatics are people like musicians who are notorio
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'Credit card companies...'
What do you mean by that? Mastercard and Visa don't make anything from interest charges, that is the issuers business, like GS, or Wells Fargo, BofA, etc... Mastercard/Visa operate the internetworks, connecting card issuers (banks mostly) with merchant acquirers (many are banks, some are not) to accept requests for payment, verify the details and approvals, and notify the parties involved. Merchants get paid by their acquirers, usually, and the issuers then collect from their card
Look for Apple Tap To Pay (Score:3)
Apple got what they wanted out of this relationship: https://register.apple.com/tap... [apple.com].
Now we will see them leveraging their learnings
Apple has been pretty clear about their FinTech ambitions which makes Goldman an even bigger sucker: https://www.bloomberg.com/news... [bloomberg.com]
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Also, if this partnership is nixed, what happens to our Apple Credit Cards? It remains in our wallet, and we darn well will still owe the money to someone -- but will it be Goldman Sachs and rebranded as such?
Typically you will get a new credit card (and number), although it will still be branded as an Apple Card, and your account (and servicing) will transition to the new issuer. There have been some transitions which have been famously botched (Costco in 2016), but those tend to be the exceptions (and all the issuers learned a lesson there that none want to repeat). The major CC processors require that there be a regular validation/update of CC numbers to minimize customer inconvenience when one gets a new c