Will Apple Card Be Bad News for Goldman Sachs?


Aug. 14 2019, Published 5:37 p.m. ET

Goldman Sachs (GS) is entering the consumer finance space as the bank behind the upcoming Apple Card.

Declining growth and margins may have motivated the investment bank to partner with Apple. Goldman Sachs continues to face weakness in its core Investment Banking and Institutional Client Services segments.

However, according to a report by Nomura, Goldman Sachs could see huge losses from its Apple Card clients if the economy hits a recession in the next few years. Nomura analyst Bill Carcache thinks it will take Goldman Sachs several years before it can break even on the cost of acquiring Apple Card customers.

Carcache estimates that Goldman Sachs will need $350 to acquire each user. He explains that the tech giant’s new credit card is vulnerable to losses, since he expects the investment bank to generate lower revenue and face higher costs than competitors.

According to Carcache’s estimates, it will take the bank four years to break even on Apple Card users. He predicts that the investment bank will see losses if the US economy hits a recession in that period.

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Apple hopes to retain iPhone users

Apple (AAPL) recently tested its credit card with its first group of public testers. The iPhone maker plans to entrench more users into its ever-growing ecosystem through the card.

The tech giant is tying the card with its popular mobile wallet, Apple Pay. Apple Card, of course, will be available exclusively iPhone users only.

What’s attractive about Apple Card—and what’s not

However, Apple Card doesn’t offer the same level of cashback as credit cards. So not many users will be motivated to switch, apart from the novelty the card offers.

The card is made of titanium and doesn’t come with a credit card number embedded into it. Users also don’t need the physical card, as it will be available in app form as well.

Apple probably won’t mind too much if the card isn’t profitable. Its biggest motive behind the card could be retaining iPhone users—which is absolutely vital for the company. The tech giant’s revenue from its core iPhone business has seen double-digit declines for three straight quarters.

Goldman Sachs stock was down 4.2% on Wednesday, as the yield curve inverted and caused a rout in financial stocks. Meanwhile, Apple stock was down 3% in Wednesday’s session.


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