After Goldman, a murky future for the Apple card

Goldman Sachs, which has been working to get out of the credit card business, appears to be ending its co-branded credit card and savings account with Apple. Apple says it is still committed to its Apple Card business, but recently sent a term sheet to Goldman that would be a first step toward severing the contract between the two giants. Experts expect the dissolution to take years.

The partnership has been troubled for some time. One of the fundamentals that went largely overlooked in the Goldman/Apple relationship is that although many people may want an Apple device, not everyone qualifies for a credit card. The relationship requires more cooperation and compromise than either side appears to have wanted.

“One relationship that has worked over the years is Citi’s relationship with American Airlines, which is now close to 50 years old,” said Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research. “There is a clear understanding that credit is at risk with cardholders, and underwriting must consider the importance of FICO scores in accepting or declining the relationship.”

Who Wants to Partner with Apple?

The key question now is who will pick up the relationship, given that banks are already increasing their loss reserves for 2024. And this is not Apple’s first time dealing with an unhappy co-branded partnership. Prior to Goldman, Apple ended a similar relationship with Barclaycard in 2019.

Riley listed off why many of the major players might be reluctant to partner with Apple:

• American Express could afford to acquire the receivable, but their business model is working well, and has been producing plenty of organic growth on its own.

• Chase is already in many U.S. households that unless there is a compelling reason (and discount to the receivable), they don’t need the Apple name.

• Bank of America ties their cards to their branch system and has been a modest player in co-brands.

• Citi has an appetite for iconic brands like Apple, but is undergoing major realignments in its business.

• Discover has a broad business model that might not make an Apple partnership attractive to them.

Aside from these companies, there are only a few others with the infrastructure, balance sheet, and/or inclination to profit from the relationship. Synchrony is one possibility, although it would force them to shift some of their existing business strategies.

“There is a learning moment here,” said Riley. “You can’t buy your way into the credit card business. If you lower lending standards, you will pay a price with credit losses. Extending credit requires discipline, modeling, and an acceptance of reality.”