Apple and Goldman Sachs, from their collaborative strategy for “the most successful credit card launch ever” to Goldman Sachs attempting to end the partnership, delving into the intricate twists reveals the driving forces behind a deeper competitive landscape.
Since its official launch in the United States in August 2019, the Apple Card reportedly attracted approximately 10 million users by early 2023. The historical significance of this collaboration stemmed from the joint efforts of Silicon Valley’s tech giant and Wall Street’s financial powerhouse to create a revolutionary Mobile First digital credit card. This collaboration aimed to further penetrate the vast market of consumer finance. For Goldman Sachs, a financial giant, Apple represented an opportunity to expand its business, transitioning from traditional banking to financial technology. For Apple, it was a means to enrich its services, integrate financial products into mobile applications, and create more incentives for iPhone purchases.
Goldman Sachs CEO described the Apple Card as the most successful credit card launch ever. The collaboration involved Apple developing the “Wallet,” integrated into iPhone, providing technological advantages related to iPhone and Apple Pay, and managing the development of applications and information security. Goldman Sachs, on the other hand, handled credit card application reviews, issuance, billing, and risk management.
However, by early 2023, less than four years since its launch, the formidable alliance between Apple and Goldman Sachs seemed to be in a precarious situation as they hesitated to extend their strategic contract beyond the initial ten-year partnership.
Apple’s Chief Financial Officer, Luca Maestri, and his financial team proposed the idea of a co-branded credit card in 2016. The primary motivation was the increasing replacement cycle of iPhones, surpassing a two-year period. The internal consideration was to stimulate consumer loans to encourage more iPhone upgrades and maintain loyalty among existing iPhone users.
Given the high financial risk associated with the loan business for private enterprises, some Apple employees were skeptical about the company’s involvement in offering loans at that time. The simplest and most direct solution was to provide a credit card, allowing customers to use installment plans to purchase new iPhones, reducing the hesitation and difficulty of acquiring a new device.
The collaboration went beyond issuing a co-branded credit card. They aimed to embed reminders in the iPhone user interface application, encouraging customers to settle their card balances ahead of schedule, accompanied by incentives to illustrate potential savings. This approach contradicted the traditional practices of card-issuing institutions, which typically profit from revolving interest on balances.
With this idea, Apple began searching for partners and engaged in negotiations with companies such as JPMorgan and American Express. Goldman Sachs was initially not on Apple’s list but persistently seeking collaboration. Goldman Sachs requested a meeting at Apple’s headquarters, sparking industry discussions about potential variations in the partnership. Ultimately, Apple decided to collaborate with Goldman Sachs, and with the launch of the new bank Marcus, Goldman Sachs entered the consumer banking business.
Before publicly disclosing their collaboration, Apple and Goldman Sachs encountered some unexpected obstacles during the trial. As partners, both faced challenges, including Apple CEO Tim Cook being unable to obtain approval for the issuance of the Apple Card.
As former employees who were involved in the Apple Card project noted, executives from both companies seemed to significantly underestimate the difficulty of merging Apple’s innovative technology with the culture of Goldman Sachs, headquartered in New York. Prior to its launch in August 2019, Apple and Goldman Sachs not only had to reach a consensus on the design of the iPhone interface and the physical card but also had to address technical issues related to issuance and transactions.
From the bank’s perspective, the concept of issuing a credit card was an ongoing point of contention with Apple Pay engineers. They did not favor a physical card as they aimed to promote contactless payment on iPhones. On the other hand, Goldman Sachs wanted its Marcus consumer brand to appear on the card. After a period of negotiations, the final agreement resulted in the front of the credit card bearing only the name of Apple, while the back featured Goldman Sachs and Mastercard.
Throughout the development of Apple Card, Apple conceived numerous product concepts. However, due to financial regulatory constraints and credit card processing limitations, these concepts ultimately couldn’t be realized. At the same time, Goldman Sachs underestimated the complexity of meeting Apple’s comprehensive technological and design specifications.
While all interested consumers could access Apple’s hardware products and services, some might not obtain the necessary authorization for the credit card. In response to this situation, Apple launched a program in 2020 called “Path to Apple Card,” providing guidance for credit improvement to consumers who applied for the credit card but were denied.
Additionally, before the debut of Apple Card on its first day, Apple requested Goldman Sachs to establish infrastructure in the first year to support 5 million users. However, after receiving a large number of email registrations from potential customers, Apple revised the projection to 10 million users, leading to an increased investment by Goldman Sachs in the project. Unfortunately, in the first year, only 3 million cardholders actually acquired the Apple Card, significantly below their initial target.
Despite facing challenges, Apple and Goldman Sachs continued to expand their collaboration with new projects. In 2020, they introduced a program allowing cardholders to purchase Apple products through monthly installment payments. In 2021, they launched Apple Card Family, enabling multiple users within a family to share one credit card account. Subsequently, they introduced the Apple Pay Later feature, allowing cardholders to split purchase amounts into four payments over six weeks, without interest or fees.
Additionally, their collaboration unveiled a high-yield savings account, which, with its 4.15% interest rate, attracted $1 billion in deposits within a week. However, post-launch issues arose as some customers faced difficulties withdrawing funds, exacerbating Apple’s sensitivity to disputes over customer experience, as the company aimed for perfection behind its products.
In 2022, Goldman Sachs initiated a restructuring, scaling back its ambitions in consumer banking and financial services after internal discussions and strategic reviews.
According to a February report from The Wall Street Journal, the Wall Street giant ended negotiations with T-Mobile to launch a joint credit card and abandoned bidding for the project. A few months later, Goldman Sachs announced its intention to find a buyer for GreenSky. Following these events, Apple’s reliance on Goldman Sachs for strategic adaptability decreased, and in January 2023, Bloomberg reported that the Apple Card caused at least a $1 billion pre-tax loss for Goldman Sachs between 2021 and 2022.
The Apple Card has no fees whatsoever – no annual, over-the-limit, foreign-transaction, or late fees. Goldman Sachs lost a potential source of income from customers who typically pay annual fees, late fees, or overseas transaction fees.
As a result of this financial impact, rumors circulated in the market in June that Goldman Sachs was in discussions with American Express to potentially sell its collaboration on the Apple Card. However, for Goldman Sachs, there are limited options for going solo as it cannot abandon the collaborative business without Apple’s consent. Therefore, the market is skeptical about whether other potential partners would agree to Apple’s conditions.
As someone familiar with financial operations shared, although American Express operates on its network, Apple Card signed a decision contract to use the Mastercard network at least until 2026, which puts American Express at a disadvantage.
From another perspective, Apple always has the option to operate in a different ecosystem without major partners. They could choose a sufficiently large bank to take on part of Apple Card’s credit card portfolio and related savings accounts, and this bank could take all necessary measures to comply with financial regulations. Meanwhile, Apple could participate in more of Goldman Sachs’ existing businesses, such as underwriting decisions, fraud prevention, and customer service.
Jackel Sheng, UIC’s CSO, said “personally, I don’t think they would end this partnership quickly and easily. As many market sources suggest, cooperating with another financial partner on the same terms may not be easy, and Apple might not be in a rush.”
Returning to the beginning of the article, both JP Morgan and America Express have had many co-branded collaborations, even establishing good relationships under the same brand. Therefore, it’s hard to imagine that they would have a strong interest or motivation to actively respond to Apple’s outreach, especially when dealing with the aftermath of Goldman Sachs. Of course, if the end product proves highly profitable for Goldman Sachs, it won’t be a problem between the two.
In conclusion, Goldman Sachs has always wanted to staunch the bleeding amid losses, but it is unlikely to happen in the short term. For existing Apple Cardholders or new applicants, who the future collaborative winner is doesn’t matter. What matters is how much advantage Apple provides in the financial ecosystem, allowing users to continue loving the Apple Card and contributing to the ecosystem.