Introduction
Goldman Sachs is set to exit its four-year partnership with Apple on the credit card venture due to concerns of high risk and unprofitability. Bidders interested in purchasing Goldman’s share will likely pressure the bank to lower the stake’s value, making it more appealing. However, financial details of the card business are not publicly disclosed by Goldman Sachs, and the bank declined to comment on the matter.
Potential Changes and New Partnerships
Prospective bidders may seek to renegotiate the terms of the deal with Apple and gain access to the company’s credit card data, which is currently not shared with third parties for marketing. Synchrony Financial, Citigroup, and Capital One are suggested as logical partners if the terms of the partnership change. However, Synchrony declined to comment on the speculations.
Apple’s Perspective
Recently, Apple presented a proposal that would allow Goldman Sachs to exit the contract within the next 12 to 15 months. Apple, while focused on providing customers with an exceptional experience, has not commented on the ongoing talks or the terms of the deal with Goldman Sachs.
Strategic Alternatives and Background
Goldman Sachs, after scaling back its retail ambitions, has been exploring strategic alternatives for its consumer unit. Talks with Apple began under former CEO Lloyd Blankfein with the goal of tapping into Apple’s vast customer base. Solomon took over as CEO in 2018, and the Apple credit card was launched in 2019. A deal was renegotiated in 2022, extending the partnership until the end of the decade. Solomon expressed a desire to eliminate the negative impact on earnings from the credit card business.
Challenges and Losses
The partnership faced challenges from the outset. Credit card businesses tend to incur losses in their early years, and Goldman Sachs was responsible for setting aside provisions for credit losses alone. Furthermore, underwriting loans for less-affluent customers was a new experience for Goldman. As a result, the consumer business suffered paper losses, especially as cards were issued to customers with lower credit scores. The costs of running the business were shared, with Apple covering marketing expenses and Goldman Sachs handling customer service.
In conclusion, Goldman Sachs is making efforts to exit its partnership with Apple on the credit card venture due to concerns of high risk and unprofitability. Prospective bidders may seek to renegotiate terms and gain access to Apple’s credit card data. Synchrony Financial, Citigroup, and Capital One are potential partners if the terms change. Apple has presented a proposal for Goldman Sachs to exit the contract within the next 12 to 15 months. This development follows Goldman’s exploration of strategic alternatives for its consumer unit. The partnership faced challenges, particularly in underwriting loans for less-affluent customers, resulting in paper losses for the consumer business.