Goldman lost billions of dollars on the Apple Card, but maybe it'll work for JPMorgan

In 2019, Apple and Goldman Sachs joined forces to launch what Goldman called “a groundbreaking new credit card.” To quote Goldman Sachs’ website:

With features including no fees, daily cash back and seamless integration into Apple’s mobile devices, Apple Card introduces a new level of privacy, security and transparency to credit cards, allowing consumers to quickly and easily analyze their spending patterns and calculate how much they could save in interest charges by paying off different portions of their balances.

Goldman Sachs is the issuer of the card and is responsible for underwriting, customer service, the underlying platform and all matters related to regulatory compliance through Goldman Sachs Bank USA.

Just four years later, the two companies decided to shut the partnership down, with The Wall Street Journal noting that Goldman had lost “billions of dollars” trying to build out a full-service consumer operation. The issue at hand was that Goldman is not a consumer bank, Goldman is an investment bank that offers wealth management solutions to affluent clients. Through the first six months of 2023, before the companies agreed to shut down their credit card partnership, Goldman generated $15.6 billion in banking and markets revenues, $6.3 billion in asset & wealth management revenues, and just $1.2 billion in platform solutions (the arm that includes its retail consumer-facing offerings such as its Apple credit card), and almost all of that revenue was net interest income. After factoring for provisions for credit losses (regulators require banks to set aside ~7% of projected sales to cover expected losses on new credit cards) and operating expenses, Goldman’s platform solutions arm lost $1.2 billion through the first six months of 2023.

So who is going to buy Goldman’s stake in the credit card partnership, which now has over 12 million users? According to The Wall Street Journal, JPMorgan Chase is now in talks with Apple about replacing Goldman. At first glance, this feels like a more natural fit. JPMorgan has 86 million retail banking customers, and the bank offers credit cards, auto loans, mortgages, and consumer banking solutions through its consumer arm, so it has much more experience underwriting retail loans than Goldman.

JPMorgan also poised to negotiate much better terms on its potential partnership than Goldman did. In Goldman’s current deal with Apple, Apple insisted that cardholders get their bill at the beginning of the month, compared to the rolling basis typically used by credit card issuers, overloading Goldman’s customer service reps. Apple also pushed for Goldman to approve as many loans as possible (2008, anybody?), leaving Goldman with losses on many of its loans.

Funny enough, JPMorgan initially passed on the deal because the bank believed its potential cut of profits would be too small. Now, however, JPMorgan has negotiating leverage. Goldman wants to get out of the program, and Apple wants to maintain its 12 million customer card program, but they’ll have to agree with JPMorgan (or any other buyer) on the purchase price of the ~$17 billion in outstanding balances on Apple credit cards. Per The Wall Street Journal, JPMorgan wants to buy the loans at a discount, and Apple has signaled that unlike Goldman, it’s willing to work with JPMorgan on changing the billing dates.

Goldman is almost certainly going to take a loss on its stake in this project: the company is already projecting to take a $400 million hit from transferring its General Motors credit card businesses to Barclays, and that business only had $2 billion in outstanding balances. With $17 billion outstanding on Apple cards, the damage could get ugly.