Multiple reports have emerged that Apple (NASDAQ:AAPL) has cut a deal with Goldman Sachs (NYSE:GS) to exit its partnership regarding the popular Apple Card. The rumblings indicate that Apple approached Goldman to end the partnership.
Apple has been pushing into Fintech for years now, and the Apple Card is one of its most successful ventures for US customers. To offer the card, Apple needed to partner with a banking entity, and Goldman Sachs stepped up to the plate at a time when its corporate strategy included a significant effort to provide financial services to the masses by leveraging technology.
The Apple Card launched in August of 2019 and quickly grew to billions in credit for its users. The simplicity of adding and using the card in the Apple digital wallet was emblematic of the entire Apple ecosystem. Purchases returned up to 3% to users, and balance payments were scheduled at the end of each month. The actual physical card issued in metal aligns with Apple’s design ethos that less is more.
By 2021, Apple CEO Tim Cook declared the Apple Card “the most successful credit card launch ever,” adding that “customers are loving all of the benefits of Apple Card.”
Meanwhile, Goldman Sachs was struggling with its retail strategy along with its digital bank brand, Marcus. While putting on a happy face in public, rumblings emerged of profound dysfunction within Goldman as it attempted to instill a startup culture within a bank that has been built upon the asymmetry of information in investment banking.
According to a report by WSJ.com, Apple is now slated to sever the agreement with Goldman Sachs within the next 15 months. The decision was driven by the full-out retreat by Goldman Sachs in its failed Fintech strategy that is collapsing more due to culture than intent. Goldman has yet to confirm its decision, but it is clear from recent Goldman earnings calls that its heart was no longer in the partnership.
While the schism has been visible for some time, Apple has continued to morph into a digital bank, providing an interest-bearing savings account (in partnership with Goldman) that provided a decent interest rate (not the highest available) but with the Apple simplicity that made it a success. Credit services have also been added to its list of banking services with Apple’s BNPL (buy now pay later) option and additional loan options expected in the future.
While the divorce with Goldman may be disappointing for multiple reasons, a relationship where one side feels shorted by the other is probably not the best option for a happy future. While Goldman thought it could make its marriage with Apple work, obviously, it has failed.
There have been reports that Apple has chatted up with American Express (NYSE:AXP), another banking entity that has pushed into Fintech, and other establishment banking firms. Apple should not have much of a problem finding another partner as its extensive reach and popular brand profile could be beneficial for a banking partner – depending on the details.
Another option is for Apple to acquire or invest in a Fintech company with a banking license. Today, there are several options. A more secure partnership could help mitigate any future challenges.
In the end, Apple has a fortress balance sheet that can be leveraged to the benefit of providing financial services. Consumers love and trust their Apple products – unlike many of the big banking brands. You can expect Apple to continue its measured roll-out of financial services designed to improve upon legacy services all seamlessly integrated into the Apple iPhone, iPad, etc. The Bank of Apple, either in partnership with a bank or by owning a bank, is inevitable. The big loser in all of this is Goldman Sachs, which has prominently displayed its inability to innovate and iterate in a way that could generate a profit. While the chattering classes on Wall Street will point to the deal terms, others believe it was the ossified culture of the world’s most prominent investment bank. Whichever is to blame, it no longer matters.