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Report: Apple to end partnership with bank that backs Apple Card, savings accounts
(arstechnica.com)
this post was submitted on 30 Nov 2023
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That's just mismanagement and inflated input costs. The average cc company is happy either way. Idk what it is with Goldman but they mucked up consumer banking too.
I’ve heard rumors that the reverse is actually true, and too many people ARE paying on time because Apple purposely designed their app to encourage people not to carry a balance.
That could be true, I don't know honestly.
But then it's an issue of bad fee structures, or rather overestimating defaulter numbers. It's not like the amount of money you make from fees reduces as your interest earnings go up, so - if this is indeed the cause - the only thing I can conclude is that to meet their total projected earnings they assumed people would default en masse. Bad long term business and slim margins if you ask me.
At the same time I have a hard time not drawing a parallel between this and GS Marcus. Apple had nothing to do with the latter and both went under (effectively), with both being forays into regular consumer services for GS.
Then again I'm just an armchair general. What do I know.
Well, just take a look at the terms of the Apple Card and compare them with any other offering out there.
There are literally zero fees. No annual fees, no transaction fees, no late payment fees, not even foreign transaction fees. None. And this isn’t just advertising. I’ve had the card for a few years now and I have indeed never paid any fees whatsoever.
On top of that, they give you anywhere between 1-3% cash back on your purchases, meaning whatever transaction fees the bank collects is likely all going straight to the consumer. Interest payments are literally the ONLY opportunity here for the bank to make any money at all.
Goldman likely made a bet that Apple customers wouldn’t be able to resist splurging on frequent purchases at Apple (since those get 3% cash back) and end up carrying a balance for those, but perhaps not enough of them did for them to make up for the cost of all their overhead (processing cost, support staff, etc.)
Again, that’s just a theory, I don’t have any proof that this is the case, but it seems to make more sense than the explanation given in the article, that too much of the debt became uncollectable, which seems to imply that either a lot of their customers went bankrupt or there was a massive amount of fraud.
Unless they were lazy on vetting the applications and did in fact hand them out like candy (probably not something they would like to admit in public), I don’t see how that could have happened. The stereotypical Apple customer is likely at least upper middle class and financially literate. If those people are going broke in record numbers, the economy might be in a worse shape than everyone thinks.
Goldman were greedy for access to Apple’s customer base, and they took a huge gamble by betting they’d be able to make their money on interest alone. Apple literally dictated the terms in this deal and insisted on this fee structure. They likely don’t care about making any money on it at all, for them it’s just a nice bonus they like to extend to their customers in lieu of a loyalty program (the card is the only way to get a consistent rebate at Apple, and yes you can charge your iCloud subscription on it). It’s free advertising basically, every time you use the card, you think of your friends at Apple for giving you such a sweet deal compared to the nonsense fees you have to put up with at other banks.
Didn't know they were so generous with the terms. But I meant the fees they charge merchants. At least that's how the business usually works if I'm not mistaken. Biggest cut of the merchant fee goes to the issuer bank, a smidge to the payment network, and a smalish portion to the merchant bank. Apple usually takes a portion of the issuer bank's cut (in this case GS)
Yes, the terms are indeed extremely generous to their customers.
If I’m reading this article correctly, Apple as the payment processor earns between 1.55-2.6% per transaction, since the Apple runs on the MasterCard network. Likely this means they get 1.55% for regular transaction and 2.6% for Apple Pay ones. But since they pay 1% cash back on the former, and 2% on the latter, their cut is only about 0.6%, likely just barely enough to cover their own costs. On transactions made directly at Apple or one of their partners, they likely end up losing a little money, which is why I compared the card to a loyalty program.
Like I said, Apple doesn’t need to make any money on this, they already make more than enough on their hardware. This is simply a service they provide in order to make their customers happy and incentive them to stay loyal to the company. As long as their operating costs are covered, they’re good.
As far as Goldman goes, again, if I read the article correctly, they DO collect the interchange fees, so perhaps my initial assumption, that they only get to make money on interest, was incorrect. But if this is the case, them losing billions of dollars on this deal despite earning between 1.15-2%, plus 10 cents on each transaction would be even worse.
Either way, for Apple Card customers this was/is certainly a very good deal, so I do hope that Apple will find a way to continue this service. It’s by far the least problematic credit card I’ve ever used, and I had quite a few. Really the only downside of it is that the cash back comes on a virtual Discover card for some reason, so you can only spend it at merchants who accept Apple Pay AND Discover. While that’s still far more than you’d think, because basically every store that uses Square’s POS systems qualifies, as well as most (but not all) stores that accept Apple Pay, it can be a little annoying. I do think you have the option of transferring the reward balance to your bank account, but that likely takes a couple of days and there’s probably a minimum involved.
Of course what could have happened is that that cut was way bigger then the usual Apple Pay deal.