The Unraveling Partnership
Goldman Sachs, renowned for its expertise in investment banking, ventured into the uncharted waters of consumer lending through partnerships, the most prominent being the Apple Card. Initially hailed as a game-changer in the credit sector, the partnership’s lustre has faded rapidly. This change in perception is not unfounded. In 2022, Goldman Sachs posted a loss of $1.2 billion, predominantly attributed to the Apple Card.
Though the Apple Card’s rollout was once dubbed “the most successful credit card launch ever”, sentiments within the company have gravitated towards regret. Behind closed doors, executives have vocalized concerns, with one reportedly stating they “should never have done this”.
Several factors contributed to the partnership’s rocky journey. From allegations of gender bias in credit limit calculations to a staggering $350 expenditure on each new Apple Card user, the road was fraught with hurdles. Adding fuel to the fire, the Consumer Financial Protection Bureau launched an investigation into alleged fraud. Simultaneously, the once-anticipated Apple Savings account, launched in April 2023, has not lived up to expectations, intensifying the firm’s desire to exit consumer-facing deals.
Goldman Sachs’ distinctive billing cycle for Apple Card, which sees all bills dispatched at the month’s commencement, has been another point of contention. This process strains customer service representatives, as it deviates from typical rolling billing practices adopted by other credit cards. Efforts to convince Apple to alter this system have been in vain.
Possible Exits and Transitions
The bank has explored multiple exit strategies. Talks have been held with American Express, although concerns about the Apple Card’s loss rates could be a stumbling block. Some within Goldman Sachs proposed that Apple should shoulder a more significant portion of the venture, such as enrolling new card users. However, this option hasn’t gained traction within either entity.
Goldman’s recent divestment of Green Sky, another consumer lending platform, at a loss further highlights its shifting priorities away from consumer lending.
The banking sector has been under significant strain, with Goldman’s stocks plummeting by 11% in 2023. The wider industry isn’t faring much better, with America’s largest banks witnessing a 24% decline due to various factors, including regulatory pressures and rising interest rates.
As Goldman Sachs prepares to announce its earnings on October 17, 2023, the fate of its consumer division hangs in the balance. This collaboration between the giants of Wall Street and Silicon Valley, once seen as groundbreaking, now serves as a cautionary tale for partnerships between diverse sectors.