A Blog by Jonathan Low


Mar 2, 2019

Why Is Apple Partnering With - Gulp! - Goldman Sachs? And Does It Matter?

Goldman is trying to expand its financial services business so offering Apple a beneficial deal pays big dividends for them.

Apple's electronic ecosystem is not going to care. They are locked in and aren't leaving just because their primary digital provider aligns with yet another reputationally dodgy service provider. They have become inured to the realities of the convenience/speed vs morality trade-off. The question is whether this actually provides an innovative offering, which does not, so far, appear to be the case. JL

The Motley Fool reports:

"I don't think it's going to matter that much to Apple. It doesn't matter who their credit card partner is. Whoever gives them the best deal is who they should go with. It could matter to Goldman Sachs because they're trying to build up their consumer banking business. I can't think of a better way to break into the credit card space than to partner with Apple.A lot of the early reviews are that this is not going to be needle-moving. The rewards rate is nothing you can't get anywhere else. I could see a younger generation of users looking to get their first credit card (for whom this) does provide some value-add."
Investment banking giant Goldman Sachs (NYSE:GS) is getting ready to dive headfirst into the credit card business by becoming Apple's (NASDAQ:AAPL) co-branding partner. Initial media reactions indicate that the card won't have a major impact in the market, but there are some unanswered questions investors should be aware of.
Jason Moser: We wanted to talk a little bit today about Apple's new foray into a credit card offering with one of our favorite banks here on Industry Focus: Financials, Goldman Sachs. I have to admit, when I was reading this thing, my first inclination was to say, "This is not going to matter at all." Then I took a step back and said, "Wait a minute, let's keep an open mind and think about how this could matter, how this could play out for Apple." After giving it some deliberate thought, I came to the same conclusion. I just don't know that this is something that's going to matter really at all. But I could be totally wrong. What's your take on this?
Matt Frankel: I'm with you in the sense that I don't think it's going to matter that much to Apple. It doesn't matter who their credit card partner is. Whoever gives them the best deal is who they should probably go with. It could matter big-time to Goldman Sachs, depending.
A lot of the early reviews are exactly what you just said, that this is not going to be a needle-moving credit card. It's not going to be a big deal. The rewards rate is nothing you can't get anywhere else. What we know so far, based on a Wall Street Journal report, is that the new Apple-Goldman Sachs credit card will offer a 2% reward rate on most purchases, which is not unheard of. I could ramble off a list of five credit cards that do the same thing. But how they phrased it, and it's kind of vague, is higher rewards on Apple products. Does that mean a 3% rate on Apple products? In that case, you could probably find something that beats it with rotating categories or just buying them on Amazon and getting the Amazon credit card.
Moser: But how many Apple products are going out there and buying? I buy a phone, maybe a set of headphones or whatever. But, I mean, it's not like you're going out and buying Apple products on a regular basis, right?
Frankel: Well, that's fair, but Apple products are expensive.
Moser: True.
Frankel: If you have something like a 5% rewards rate and combine it with
something like zero interest financing on any Apple purchase forever, now you've got my attention.
The way most credit cards work is, you have a 0% introductory period, say, 0% interest for the first 12 months you'll have the card. If you were to offer something like 0% interest for 12 months anytime you buy something from Apple, regardless of how long you've had the card, that could be an interesting proposition. Something like that.
So, the big question mark is, what do they mean by "better rewards on Apple products?" Like I said, no matter what the answer to that is, it's probably not going to matter to Apple that much. This could be huge for Goldman Sachs because they're just trying to build up their consumer banking business. I really can't think of a better way to break into the credit card space than to partner with Apple.
Moser: Yeah. The other thing I noticed here that I was at least happy to see is that they're going to be utilizing MasterCard's rails to make this all work. When we talk about payments, you'd be very hard-pressed to not see MasterCard or Visa playing a role in that transaction in some way, shape, or form. It sounds like MasterCard is getting the nod here over Visa. Again, probably not the biggest impact to MasterCard's business, but I think it would be certainly some additional incremental revenue that wouldn't hurt the cause.
Frankel: It's going to come down to whether this card offers value over what else is on the market. Right now, competition in the credit card industry has really never been higher. There are some pretty good credit card offers out there right now. That's what all the reviews are getting at. This will need to be a really unique product to move the needle for either company.
Moser: It sounds like they're trying to present that unique offering by incorporating it to your phone. They integrate the card into your phone. It's supposed to let consumers set spending goals, track your rewards, manage your balances. In theory, it should help folks manage their money a little bit better, perhaps a little bit easier to do if you're just using your iPhone to do all of this stuff. Maybe there's something there. I don't know. I feel like online banking certainly gives you all of these tools already. It's pretty easy to manage your money with whatever online banking tools you have, card orbank. Again, I don't know. I certainly don't see this offering as something geared toward someone like me, given that I already have credit cards that I've established and I'm happy with. But, I could certainly see a younger generation of users that are coming up that are looking to get their first credit card, or perhaps add another credit card to their arsenal, maybe this does provide some value-add in those additional services, in being able to manage your money a little bit better.
Frankel: For somebody like me or you, it would have to be, like I said, something extra special to get me to sign up for yet another credit card when I have some that I'm very happy with. We'll have to see. There's still a few big question marks. I think it has the potential to be a bigger deal for Goldman than it does for Apple.


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