Tech giant Apple has announced its decision to discontinue its credit card partnership with Investment banking company, Goldman Sachs.
The tech giant recently sent a proposal to the Wall Street bank to exit the contract in the next 12 to 15 months. This exit would cover their entire consumer partnership, including the savings account rolled out this year.
Speaking on the end of its partnership with Goldman Sachs, Apple said,
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“Apple and Goldman Sachs are focused on providing an incredible experience for our customers to help them lead healthier financial lives. The award-winning Apple Card has seen a great reception from consumers, and we will continue to innovate and deliver the best tools and services for them.”
Recall that Goldman Sachs and Apple entered into a partnership in 2019, to provide consumer lending, which included the Apple Card.
The two companies further announced a savings account with high yields, exclusively for Apple card users. Additionally, they also offered a “Buy Now Pay Later” (BNPL) service in the US to Apple users, which enables users to divide purchases into four payments over six weeks without any interest or fees.
However, the end of this partnership comes as Goldman Sachs has been pulling back from its move into consumer lending, which has proven more costly than it anticipated.
In June this year, the investment bank shared its financial results for Q2 2023 will saw it post significant losses.
In the June quarter alone, the bank saw a net loss of $667 million ($872 million pre-tax loss). While the division saw an increase in revenue, the provision for credit losses was very high, quickly eating away all of the $659 million in quarterly revenue and more.
Goldman Sachs’ “Platform Solutions” businesses, including the Apple Card, has resulted in a loss of $3 billion till 2022. Most of the $1 billion loss in 2021 came from the Apple Card, and another $2 billion in 2022 losses are believed to come from the Apple Card and GreenSky mostly.
According to a Wall Street report, Goldman Sachs was overwhelmed by the size of the consumer credit partnership and discussed handing off the program to American Express and other suitors as it struggled to scale the required customer service and back-end resources.
The New York-based company has said it pushed too quickly into the effort, contributing to missteps. Goldman Sachs has held talks with American Express Co. to take over the Apple credit card and other services, but the company was reluctant in taking over the deal, expressing concerns about loss rates.
For Apple, the partnership with Goldman was part of a broader push into financial offerings. The company is looking to generate more revenue from services as sales of its hardware products slow.
Apple and Goldman will have to work out the terms of an exit which could take over a year. It also marks the latest big step by the investment bank to get out of the consumer banking experiment.
It is also worth noting that Goldman Sachs is also expected to discontinue its credit card partnership with General Motors. Recall that Goldman purchased the card business from GM in 2020 for around $2.5 billion, outbidding Barclays as the two companies.
Last month, the bank announced that it surpassed estimates for third-quarter profit but disclosed that its ill-fated foray into consumer banking continued to weigh on its overall revenue.
For Apple, the tech giant has disclosed that it remains committed to its Apple Card credit card and savings account and doesn’t plan to discontinue the products whether or not Goldman Sachs is involved as it is open to new partnerships.