Apple has proposed splitting up with Goldman Sachs, as the latter wants to get out of its relationship with the iPhone maker and wind up its consumer lending business. As Apple bids farewell to Goldman, it is looking for a new partner to take on its credit card and other financial services. American Express is the potential candidate to fill in, but it could find a better partner in Chase Bank, which is already in business with the iPhone maker.
Bloomberg’s Mark Gurman in the latest edition of his newsletter Power On newsletter, argues why Chase Bank could be the best partner to replace Goldman Sachs for the Apple Card, given the company’s existing relationship with the bank.
Gurman has discussed why it would be a wise decision for Apple to collaborate with Chase Bank this time around. Chase was one of Apple Pay’s earliest partners, collaborated on the Ultimate Rewards program, offering discounts on Apple products, and also holds about $60 million in cash reserves for Apple.
What’s in for Chase in this partnership
However, Chase was one of the banks that initially passed on the opportunity to partner with Apple for the Apple Card. Though, things are a little different. It has grown to be a tremendous success for Apple. For all the costs Goldman had to bear, it gave the bank over a million customers and more than $10 billion in deposits. So, whoever takes on now, Amex or Chase will get all these million customers with deposits of over $10 billion and counting.
Then, the Apple Card gets the prime spot in the wallet app, and the cashbacks make it a lure for users. Thus, Chase gets more transactions.
Although American Express has a vast partner network across the US, Gurman noted that Chase issues credit cards on the same MasterCard network as the Apple Card. So, Apple would not need to switch to another network, which could be one of the reasons for Apple to go with Chase.
Thus, Chase could take on Apple Card and its buy-now-pay-later service. However, the bank might not be interested in Apple’s deposit account. Chase offers a much lower interest compared to the 4.15 per cent that Apple Cash has promised to its customers. What could be the potential solution for this? Gurman suggests that Apple could split the deposits among different banks that are willing to offer the same interest to Apple.
Goldman’s ‘bittersweet’ deal with Apple
Goldman Sachs’ credit card business, anchored by the Apple Card since 2019, has been very successful in expanding the company’s retail lending scale. It contributes to the division’s 14 million customers and $16 billion in loan balances, which is expected to reach $30 billion by 2024.
The partnership has its pitfalls. Apple’s insistence on approving most applications, then offering them a load of cashback, while going soft on them during recovery, has resulted in increased loss rates, which is why Goldman is looking for an exit.
Until 2022, the division incurred $3 billion in losses, with the majority of the losses coming from the Apple Card. The bank had been trying to end its partnership with Apple since the end of last year.
Even though American Express and Synchrony Financial have shown interest in the partnership, the partnership’s loss rate has them worried. Chase seems to be the bet for Apple.
The iPhone maker has also been trying to consolidate all financial products in-house with “Project Breakout,” developing payment processing technology and infrastructure.
It is uncertain who will replace Goldman, but the Apple Card will likely remain functional. Apple has stated that it will continue to innovate and provide customers with the best tools and services.
