Rumors have circulated that the partnership between one of the biggest names in finance – Goldman Sachs – and one of the biggest names in tech – Apple – is coming to an end.
Specifically, the reports suggest that Goldman Sachs is looking to exit its financial relationship with Apple. Goldman Sachs is Apple’s partner for its Apple Card – and has been since 2019. Goldman Sachs is also Apple’s partner for its Buy Now Pay Later service, currently in beta. Reports from the Wall Street Journal indicate that Goldman Sachs is looking to off-load its Apple credit card business to American Express.
So why has the relationship soured? Here are four possible factors:
Know Your Customer
One of the big headline issues hinting at friction between Goldman Sachs and Apple occurred when Apple CEO Tim Cook was testing the Apple Card and was unable to get approved. The issue had to do with fraud protection protocols on Goldman Sachs’ side. The company’s underwriters rejected the application because, as a well-known, high-profile individual, Tim Cook is often impersonated by fraudsters. This appeared to be a one-off problem at first. But an investigation by the U.S. Consumer Financial Protection Bureau led to additional concerns about disputed transactions and, ultimately, reports of gender bias in the granting of credit limit increases. Goldman Sachs was cleared of any wrongdoing, but the drama helped stoke tensions between the company and Apple.
It’s not surprising that there were issues between the East Coast Wall Street culture of Goldman Sachs and the West Coast Silicon Valley culture of Apple. But there were very real challenges in the working relationship between the two firms. As is often the case when “move fast and break things” technologists team up with the rules-based world of finance, there was a tension between what one person called a focus on “the sleek technology and product pizazz” on the one hand and “regulatory compliance and profitability” on the other. Even at a more mundane level, basic issues such as the timing of billing statements and card design became grist for conflict and development delays.
The Bank Behind the Curtain
Writing at 9to5 Mac, Chance Miller noted that in addition to losing a ton of money with Apple Card – more than $1 billion by January 2022 – there are other ways that Goldman Sachs was losing out on the Apple partnership. Miller points out that not only was Apple developing its own in-house financial service project (called “Project Breakout”), but also there were other aspects of the relationship that ill-served Goldman Sachs. “One thing to keep in mind is that most Apple Card users likely don’t even know Apple Card is backed by Goldman Sachs,” Miller wrote. “Goldman Sachs exists in the backend, and everything else is managed directly through the Apple Wallet app.”
While this relationship is common in fintech and financial services, it seems like a poor approach for Goldman Sachs, which is newer to the consumer business than Chase or American Express and was likely seeking to build its consumer brand via its association with Apple. Couple that issue with the financial losses, and the potential of Apple “breaking out” on its own, and Goldman Sachs may have one more reason to start second-guessing its Apple Card gambit.
Whose Idea Was This Anyway?
When Goldman Sachs first announced its partnership with Apple, there were many who questioned the financial institution’s deepening foray into consumer banking. Goldman Sachs earned its lofty reputation in the world of finance as a leading investment bank and investment management firm. To say that consumer banking was not a core Goldman Sachs competency would be an understatement. But in the wake of the financial crisis, with Wall Street banks desperate for new revenue sources, consumer banking and the rise of fintech were alluring opportunities to an institution like Goldman Sachs. Goldman Sachs had room to grow – and money to burn. The firm also had a brand name and reputation that would help it gain the attention it would need in an increasingly competitive market.
But projects like Marcus rose and plateaued, with an initial rush of deposits leading to overly optimistic profit forecasts and, ultimately, significant losses. Efforts to expand into areas such as investing via Marcus revealed that Goldman Sachs was not as innovative as smaller upstarts like Robinhood. An attempt to leverage opportunities in consumer lending with the acquisition of Buy Now Pay Later startup GreenSky proved costly.
Seen through this lens, Goldman Sachs’s issues with Apple Card may have more to do with Goldman Sach’s issues with consumer banking.
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