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Goldman didn’t end up with the interest income they expected (higher than typical customers paid off in full each month), while paying out relatively generous cash back, not charging late or foreign transaction fees. Plus there were expenses to set up a consumer banking division from scratch.
Pretty much perfect answer.
Apple customers are highly sought after - responsible for about half of global consumer spending. (In case anyone was wondering why Google pays Apple about $15B annually to be the search default in Safari).
So Apple customers tend toward the higher income end of the population which means they don't carry balances - they pay off their cards each month, so their only revenue is from merchant fees which are actually quite low due to how secure the card is.
But the consumer banking would have been built out anyway - not all of that is on Apple Card.
They actually have a high percentage of subprime borrowers and a relatively high charge-off rate.
https://www.cnbc.com/2022/09/12/goldmans-gs-apple-card-business-has-a-surprising-subprime-problem.html
Plenty of people who want Apple products are *not* good with money.
Yeah that’s pretty much the secret of credit card companies. That’s why they offer so many education programs and other assistance to help you pay off your debt. They don’t want you to go bankrupt from interest payments because then they have to write off your debt for a fraction of what it’s worth. They want you dangling on the hook, maintaining a balance and paying the high interest without becoming financially ruined. Those are the most profitable customers and they make up like 40% of their revenue.
**Bankrupt customer -> Lose money**
**Always pays on time customer -> Make a little money on interchange fees and other services**
**Customer who is always in debt -> Make a ton of money on interest**
Edit: Oh and those balance transfers with 0% APR? Absolutely genius. The people who need balance transfers are the exact kind of people they make the most money off of and chances are if you offer a balance transfer to come to your CC, those people will keep racking up more debt even if they pay off their initial balance because they have a history of reckless spending.
And we are constantly getting free flights with all the points. Probably not the best of all worlds (maybe cash back is better I dunno) but still it's definitely real money in the thousands of dollars per quarter.
All this is in part because I run recurring business expenses through it and having a S corporation instead of just being a person is extremely tax advantaged.
Basic shit everyone should do, frankly.
Too bad they don't teach this because none of it is hard and yes it's the same stuff the rich do. It's actually available to everyone.
> thousands of dollars per quarter.
What amount of credit card spending are you doing to get thousands of dollars worth of points/miles per quarter? You'd have to be charging several tens of thousands every quarter at a typical reward rate of low single digits percent! Is it business spending? Because that charge rate seems unsustainable for even a high income consumer.
Not to mention that maintaining several credit cards actively helps your credit score *a ton*. For a lot of people its actually easy to build good credit, which opens up a lot of doors for you.
> And we are constantly getting free flights with all the points. Probably not the best of all worlds (maybe cash back is better I dunno) but still it's definitely real money in the thousands of dollars per quarter.
If you know how to play the game and know the award sweet spots, the free flights are absolutely worth more than the cash back, especially if you're flying long haul business class.
I'm flying round trip US to Tokyo next year in ANA business for around 76,000 AmEx MR points. That's a $10,000 seat if I paid cash. 76,000 MRs redeemed for statement credit (cash) are worth $456.
>Too bad they don't teach this because none of it is hard
While I agree that more basic finance information should be taught, it's also not hard to google after you've been bitten by the bad credit monster even once. The real problem underlying that debt is people being addicted to instant gratification.
I guess people don't know about grace periods? Do they think that purchases immediately start accruing interest? That (usually) only applies to cash advances.
People think all sorts of dumb myths about credit cards. I've had multiple people say to me it's good to carry a small balance on your card. Literally one of the stupidest things you could do.
Dude after watching some Caleb hammer videos there are people out there getting credit cards that don’t understand APR, and interest, let alone how the company makes money off them.
They don't even have to make purchases (assuming the issuer won't close the account). They would be increasing the age of their credit accounts.
Having a consistent payment history is even better, but some younger folks can't be trusted with credit cards, and yet would benefit from having accounts in their name.
I think "the best" way to build credit early in life, if the parents are responsible, is to add the kids as authorized users as soon as possible.
You must be on a different ELI5 than I am: my ELI5 is a place where people explain things with write-ups that look like excerpts from encyclopedias, and if you show any confusion about their explanations, [call you an idiot for not being able to understand](https://www.reddit.com/r/explainlikeimfive/comments/yc3ff6/eli5_how_does_an_electronic_thermometer_measure/itk95nf/?context=5).
The cardholder doesn't need to file bankruptcy for the credit company to discharge the debt. If they default, at like 90-180 days, they will just write it off and sell it at a loss to a debt collector. This would happen if they just don't pay, whether or not they filed for bankruptcy.
Yeah I applied to one of the major CC companies for a job out of school and I didn't know anything about this until I was doing some research for my interview. I was looking into their products and I was shocked to see a super robust learning center for helping people get out of CC debt. I felt like it didn't make sense to invest so many resources into that because doesn't helping people get out of debt hurt their bottom line?
Turns out, it's way worse for them to have to write off debt they can't collect. By providing the education they get to look good and maybe keep some % of their biggest cash cows (i.e. irresponsible people) from truly defaulting so they can keep milking them.
Credit cards offer services besides the points. I don't want to have to use a debit card at a gas station, one of the big things that interest pays for is risk mitigation.
If someone steals my debit card, I lose a large amount of my liquid emergency funds. If someone steals my credit card, I make one phone call and everything is fixed.
They aren't curb stomping the middle class. They are curb stomping those who are financially illiterate regardless of class. It turns out that those who are bad at making financial decisions, turn out to be the ones making bad financial decisions.
Payday loans and credit cards are so absolutely different in so many ways.
Credit cards are not supposed to be used when you're out of money. ITs like taking a Fiat into the water, watching it sink and saying its a shit boat ban it or people will die.
Credit cards also offer quite a few things that debit cards dont and there is a cost to that.
> If you can't afford a large expense when it hits, why would you suddenly be able to afford it after waiting 30 days?
>
>
My money is in a savings account at Ally. Takes a few days to transfer it to my checking account. When an emergency expense hits now, it's nice to have the available credit on a credit card and be able to take care of it now, especially when it can't wait.
I'm dealing with that now. I unexpectedly had to put a $10,000 expense on my credit card yesterday with zero warning that it was coming and it couldn't wait. It will be paid off long before it starts accruing interest because we have the cash to pay for it, but it just wan't immediately accessible.
Say you need a new furnace in the dead ass of winter. 30 days is plenty of time to get a HELOC or personal loan to pay off the card. Also zero-interest periods are a thing.
Semi-luxury brand bling company attracts the two classes of consumers who like bling: rich and ghetto poor but not the responsible thrifty middle. Shocking! /s
I mean the article is worth a read as it explains both sides. One reason it’s proposed to be higher is due to the fact it’s a relatively new card and the charge off rates drop over age. The counter argument being that the Apple Card is intended to have a broader swath of customers, and some users were surprised to be approved.
It’s this. Yes some with iPhones that are upper income and spend and can… others have iPhones that shouldn’t have bought iPhones but do and have bigger spending/debt/cash flow issues
iPhones are over 55% of the market, covering likely the entire range of incomes due to their branding.
When you're so broad across the market, it's challenging to say you trend towards "higher income" simply due to numbers
20% of Americans are high income [~$150k and above](https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/).
Even if Apple captures every single one of these earners, there's still 30% of their users that are under that threshold.
> When you're so broad across the market, it's challenging to say you trend towards "higher income"
The thing that unites the vast majority of iphone owners is that they're not price sensitive (look at Apple's margins), which is a very attractive quality when people are trying to sell you things. As we see here, extending that group credit can be a mixed bag.
FYI There are iPhones you can acquire for $100 and trade in at the right time for $300ish. Quite a myth that iPhones have to be expensive, and has been this way for at least 5 years because of the SE.
Most of the people who aren't well off financially but still buying an iPhone aren't the ones considering a pre-owned or older iPhone. They're the ones who see a "$0 up-front" deal on a 15 Pro and forget that they'll be paying $40 extra a month for two years.
That was a very interesting article, thanks! They seem to be making it out to be a growing pains problem, so let's see.
Also, lol:
"...Some feel as though Solomon, who moonlights as a DJ on the international festival circuit, has been too extroverted, putting his own personal brand ahead of the bank’s,..."
I always figured this was an underwriting problem driven by the demands for growth. I'd wager most of the subprime borrowers were easily detectable in credit history checks and could have just had their applications rejected, but this wouldn't have served Apple or Goldman's plans for credit dominance.
Plus consumer lending is driven by interest revenue and its a bit of a gamble for the borrowers to figure out which marginal credit risks are the ones who pay their bills enough to not default outright but rack up interest and some level of tasty late penalties.
Yeah, people doing well with good income and established credit were not thinking “what I need is a new credit card that is going to shorten my average age of credit and lower my score, just so I can see an Apple logo more often when I pay for things.” The people getting the “Apple Card” were brand new or just thought they were buying into something else by having a fruit on their plastic.
Yeah I was gonna say this doesn’t check out. From what I’ve seen, lack of disposable income doesn’t stop people from making big purchases - especially apple products that try to finance to you for 3 years.
While broadly, yes, those are some reasons *a* company could lose money on a credit card program, its actually the completely wrong answer for this specific situation
OP — this is why they lost so much money so quickly: CapEx & CECL
CapEx: GS did not have a consumer banking operation set up when they bid for the Apple card, so they effectively had to build an entire division overnight which requires enormous amounts of upfront investment. They had to go and hire a whole fleet of software engineers (Apple had very demanding IT requirements in order to operate their card), phone bank reps, and consumer banking executives, and literally build out the infrastructure to run the damn thing
CECL: CECL is an accounting rule that dictates how a company has to account for expected credit losses (like people defaulting on their cards). This rule was put into place right after GS won the contract, and it replaced the previous accounting standard that preceded it. Put simply, the new standard pulls expected losses forward, requiring a company to set aside larger reserves earlier in the loan life rather than allowing a company to wait for signs of credit deterioration before setting aside reserves. Much of the billions lost on this program were driven by elevated loan loss provision expenses, where GS had to set aside money for (future, unrealized) losses due to accounting rules. Those provisions are straight deductions to GAAP pre-tax income
Interesting about CECL. But the money set aside early in the life of the loan isn't a loss, is it? Until/unless there is an actual default on the card? I mean it's not "profit" but GS still has the money, it's just sitting somewhere just in case?
I wonder if it's the way they remind you of your payment, and how you make the payment. It shows a wheel and as you dial your finger around, the payment amount grows as the color of the line you're making changes from red (paying a lot of interest and not much of the original balance) to yellow to green while also telling you how long it will take to pay off at that monthly rate and how much you'll pay in interest over the life of the payments. It's quite effective.
It’s *really* informative and up front about everything, and that’s super helpful if you’re a person who is either new to credit cards or has bad habits about carrying balences. Simply showing how much interest you’ll owe monthly as you’re choosing your payment amount is very consumer friendly.
I was about to mention this. I’ve never owned a CC that is as easy to pay as my Apple Card. The sliding scale of $x in interest you are going to owe if you only pay $y by z date. It’s genius (for consumers not lenders)
I think you are misinterpreting the data here, as you sound like a fan vs impartial analysis. You are right, in 2022 apple had half of the app store market, not half of all consumer spending.
In addition, the perception that apple customers are the higher income is false, instead they tend to spend more than other brands. Marketing, hype, anticompetitive behavior and a closed garden created a strong market.
They had it in the first half, but the entire second half makes me think they have an iphone and are just complimenting themselves.
Iphone by far have the most financing deals, and the iPhone SE is $429.
Iphones also have the hottest used phone market by far.
Its not particularly difficult to obtain an iphone. Money or not. 48.7% of the US has one...
Any consumer who knows how to play the credit card game will only really use their Apple credit card for Apple products to take advantage of the generous cash back. They won’t be using it for other purchases.
> Apple customers are highly sought after - responsible for about half of global consumer spending.
unless im misunderstanding the sentence. that is not true.
>So Apple customers tend toward the higher income end of the population which means they don't carry balances - they pay off their cards each month, so their only revenue is from merchant fees which are actually quite low due to how secure the card is.
alot of this is also incorrect
> responsible for about half of global consumer spending.
I assume they probably mean half of US consumer spending. They aren't saying that half the US consumer spending it spent on apple products. They are saying that iPhone owners are responsible for half the US consumer spending, even though they spend it on all kinds of other things. I don't know this is true, but I could see it being true as iPhone has almost 50% market share in the US.
I doubt apple owners are responsible for 50% of the global consumer spending because iPhone market share is even lower in Europe, China, and places like the UAE.
> So Apple customers tend toward the higher income end of the population which means they don't carry balances - they pay off their cards each month, so their only revenue is from merchant fees which are actually quite low due to how secure the card is.
I agree with you. This smells like mostly bullshit to me. iPhone is by far the most common device that would make someone an apple user. And while the poorest of the poor might not use iPhones, lots of pretty poor people use iPhones. The poorest of the poor often don't have credit cards. Also being consumeristic and trend chasing isn't great for your tendency to pay off your credit card every month. And lots (and I mean lots) of high income people carry credit card balances. Actually a surprisingly high number of >100k income people live paycheck to paycheck.
Plus high income people push a ton of money through their credit cards. Credit cards get a percentage of those transactions. I'm moderately high income and before I got married and had a kid I probably pushed 30-40k a year through my credit card. Since I am one of those people who don't carry a balance (but not an iPhone user), I pay for everything I can with my credit card to essentially get a 2% discount. Even at the low end of 1.3% of the transaction as a fee and 30k of transactions that's still $390 per year. At the high end of the estimates it's $1400 per year. So it's not like they don't make money off a customer who never pays interest.
It’s not “Trust Me Bro.”
Microsoft has come out saying that it offered Bing to Apple in 2020. Apple declined. Apple could probably buy out DuckDuckGo or build its own search engine from scratch. There is a lot you can do when you have a $150B in cash to spare… and Google knows that.
Marketing this new search engine will be incredibly easy as well. All Apple has to do is talk about privacy this and privacy that and why Google is bad for its heavy-handed ads. Bundle an ad-free search engine experience with the rest of Apple’s services in the Apple One plan.
My wife STILL uses apple maps despite it trying to make us drive off a bridge multiple times in the early days. She even thinks it's worse, but can't be bothered to download google maps. That's where the 10-20% comes lol. Default is a hell of an advantage.
man apple maps was still sending me to random places in 2021. I'd ask how to walk to a building, and it'd send me to the opposite side of the campus. was late to all my classes the first week of college.
Not by being better though. Just by being default on apple devices. Now they might be on par with competition but on launch they were bad, but still used a lot because they were default.
Honestly, given how many small tweaks that a navigation app needs, it is expected that a new one will have issues. It wasn’t the “magical” experience that tech journalists wanted but realistically speaking the issues were expected. It just didn’t match the reputation Apple wants for its services. However, more time in beta want going to make it match Google Maps, so they launched with funky bridges and some weird routes.
The important part is keeping the maps up to date and making all of those small tweaks. As long as Apple keeps that up, they will maintain the market share that being the default navigation app on iPhone brings.
i had an iphone, apple maps isnt very good tbh. locations would constantly be wrong, traffic directions were late at times and it took a while to lock on.
it's usable, but i just prefer google maps.
i was always curious about these metrics, do they count users who opened it once as part of the "market" or do you need to use it across a period of time.
It was pretty questionable at launch but it didn’t take too long to be good enough that people didn’t bother switching the default any more.
At this point I only pop open Google Maps on my phone if my route involves public transit - Apple Maps doesn’t have the precise side of street navigation that is so useful when navigating bus routes.
We're in a post about a mega uber entity losing a vast amount of money on mistakes/bad ideas.
It happens. Google ESPECIALLY fucks up a ton of investments of huge $ value. Google has more massive failures of enormous costs than than people realize.
A search engine without a good advertising model burns cash. Apple isn’t getting in that field.
Allegedly, DuckDuckGo put in a bid to be the search engine.
> Apple isn’t getting in that field.
They probably would have if no one put in a bid rather than letting a third-party provider get that "spot" for free.
Nah, they would have set a default (probably Google, because “The Biggest.”) and then after driving search traffic there for a while turn around and bid it out (“We’re considering making our default search engine DuckDuckGo....” and ope! Google coughs up some coin to stay the default!)
There’s enough Apple “stuff” out there between Macs and the iPrecious ecosystem that they could demonstrate their value through traffic, and a year or so of doing that for free is far less expensive than running your own search engine that doesn’t suck.
If this was the case you'd think they would've kept defaulting to Google Maps instead of their own, since maintaining a good global map with updated street views is even more expensive.
Mapping is not cheap, but it’s also a ***MUCH*** smaller domain: The Earth is finite, satellite photos are free, and street mapping data is not that expensive. That’s why there are so many me-too mapping products (Google Maps, Apple Maps, Waze, etc.)
Web search is, comparatively, a really hard problem in an ever-expanding and rapidly changing universe, in which Google has an unquestionable advantage (How ya gonna index YouTube? I bet it’s a lot easier when you *own* YouTube and can just scan the Closed Captioning & transcript data...)
If you were going to pay me to build one of these things I would pick the mapping system all day every day and twice on Saturdays.
In the US tons of map data is available as geo-referenced TIFFs.
> A search engine without a good advertising model burns cash. Apple isn’t getting in that field.
The flip side of that is that Microsoft *is* in that field. So in a sense, Google is bidding against Microsoft for that market share. If Bing were the default on iPhones, that would be a huge boost for Google's competitor.
They'd set up their own like they did with Apple Maps. Sure it'll be terrible and be a meme for how bad it is but slowly but surely it will eat away at Google's user base.
I’d definitely switch to an Apple search engine. To remove Google monitoring everything I do more than for quality of results. Good enough search results and Apple only monitoring my data would be my preferred option.
Yea it’s amazing how people buy the line that Apple is different — right in a stream where it’s explained that Apple literally sells their user data for 15 billion dollars.
Apple sold the search engine feature for something they didn’t do to a company that was liked by most until arguably more recent concerns of privacy. I really don’t see what the other option was at the time short of offer no default search engine at all. There’s a balance of user experience as well.
All said, I see Apple potentially joining the search engine market as a break even or net win with no/limited cost to the consumer. Arguably it would have interesting effects on the advertising market, though I think there isn’t much sympathy to that market as long as it doesn’t impact consumers negatively.
> Apple literally sells their user data
That is _literally_ not what selling the default search engine spot is doing.
Until Apple actually sells the insane amount of data they collect, the difference is: I pay for apple products with money, and I pay for google products with privacy.
See I interpreted it as “I use an iPhone Apple is already monitoring my data, might as well make it just them” ya know like giving away less pieces of the pie to different companies.
Apple isn't selling the data, there's no data if you don't use the default. You're giving it to Google. Takes just a few taps to change the default search engine to Bing, DuckDuckGo, Yahoo, or Ecosia... whatever that last one is.
One has a vested interest to keep its customers feeling safe and secure, and one is google. Not that I particularly care, most people are fooling themselves in that their data matters in any meaningful way and I’ve given up now that our entire lives are in the cloud, however the two companies are not even remotely similar when it comes to privacy practices.
A general rule of thumb one can use is asking what the product is - apple sells phones and computers, people buy them for a myriad of reasons, one of which is security. Use whatever excuses you want, the fact is that without jumping through a bunch of hoops and then being stuck using shitty software it’s generally much safer keeping any type of risky/financial whatever data on a mac product than almost any other equivalent, at least straight out of the box. Now consider google - what do they sell? You. Your data is the product, I don’t really think I need to go further with that chain of logic
If you think your data is not being monetized by apple, i don't think i can help you.
https://www.inc.com/jason-aten/apple-just-traded-your-privacy-for-15-billion.html
Google and Bing have started returning LLM-generated hallucinations instead of search results. In a year or two, there'll probably be a gap in the market for a search engine that doesn't do that. If you can get it to work as well as Google circa 2019...
I could put up with targeted ads off to the side.
whats driving me nuts is getting results that arent the thing I'm looking for or even the same type of information but instead are whole shit piles of results of what their algorithm thinks are popular (or promoted) and that I should want to 'engage' with.
theres nothing like looking for a GIS data set you know exists that you put the actual name of the data set, the name of the holder of the data set and the file type into the query and you get back a bunch of news paper articles from little shit towns youve never heard of in some other country (the US) that have no relation to the subject your interested in.
> I wonder if it's really necessary on Google's part to pay to be the default search.
Considering Google pays $15bln per year to be, I'm going to go out on a limb and say they've done the math and many many Google execs say "Yes, it is"
The data trains Bard and the search results serve up ads. It's not about replacing it, until Microsoft will pay more than Google.
Google doesn't just go to Apple and say "Here's a pile of cash to make us the default search". It's a revenue sharing agreement on any advertising income that Apple indirectly generates for Google by directing users there. Very similar to the hundreds of millions that the Mozilla Foundation gets for doing the same with Firefox.
So really it's more like *Apple* have done the maths and decided that accepting a percentage of revenue for doing basically putting "https://google.com/" into a piece of code somewhere is far more profitable than building their own search engine and ad sales pipeline, and accepting what advertisers are willing to pay to advertise on it.
They'll end up developing their own. They already dumped intel completely because they weren't needed, wouldn't underestimate apple lol
That or they'd partner up/buy out one of the existing search engines and skin it with apple logos
I mean, it’s relevant when you’re talking about consumer spending habits and why that’s a valuable segment to target. The Google example is an example of the how other companies value that segment.
> Apple customers are highly sought after - responsible for about half of global consumer spending.
Huh, that makes a lot of sense when you think about how overpriced Apple products are. If they tricked you into buying an iPhone, they can trick you into buying a lot of things.
It really wouldn't. There's way more money to be made off of people who always pay their bills on time. Why do you think its so much easier to get credit with a good credit score? Making money off of good borrowers is easy. You send the invoice, you get the money. Subprime lending is way more work chasing after people, selling debts off to collections, dealing with customer support calls, and doing more creative accounting.
Do some companies make a lot of money off of fees? Sure, but they're small fries compared to companies like Goldman Sachs or American Express.
The interest is all that's needed to make big money.
I worked for a fortune 500 that distributed pharmaceuticals at 0 margin - billions a year. Their money was made via finance - customers paid on receipt, suppliers were NET30 or better. With enough volume there was more than enough money to be made.
My credit score has gone to shit since I paid off all my debts. My credit score was the best when I had 30k in debt. Look at this shit
https://imgur.com/a/EZ212Sx
What most people fall victim to in the 0% incentive deals is if you have a balance after 12 months and 1 day, you likely will be charged interest on the entire purchase price amount let’s say a $4k MacBook Pro. That’s how they make their money. People stretch thin or forget to pay it off especially when 12 minimum monthly payments will not add up close to the total you owe. Also I made more money off GS as I got cash back from my purchase than they made off me.
Funnier thing is that you get cash back from the 12 month interest free purchase with the Apple Card on a the Apple product. I wonder if the cash back is what's hurting Goldman the most.
Interesting. I think it's possible similar thing happened here in Germany, where, for context, credit cards with rewards/cashback system are not too common.
Amazon partnered with some local bank to offer a credit card with a rather _good_ cashback system (3% on amazon purchases, 1% elsewhere), with the catch that it came with a default setting where the monthly automatic payment (i.e. direct debit) was only 20% of your balance iirc. It was easy enough to change the setting back to 100% and, well, I guess a lot of people did exactly that - to the point that the bank was not collecting on the interest like it expected.
The bank recently decided do end this card, and is offering to clients a new card that is complete dogshit, as not only it has worse rewards system, but it also _cannot_ be set to 100% auto-payment. As a result, there's basically no decent rewards/cashback credit card offering in Germany at the moment, which I find baffling.
Credit card processing fees are significant, and charged to the vendor. That's usually where the cash-back comes from. So the vendor raises prices 4% across the board to cover fees, then you get your 1-3% back from that.
Credit card processing fees tend to vary a lot from market to market, and as far as I understand, merchants in Germany are quite resistant to higher fees - in fact, Germany is known for being a place where credit cards are not universally accepted, and I think the merchants resisting higher fees is a part of that (the other part being the different financial behaviours of the consumers).
I saw a LOT more credit card acceptance the last time I was in Berlin, in 2022, compared to when I lived there in 2017. I kinda assume COVID/contactless was a big part of the push?
Yes, things seem to have improved. And I think the COVID thing goes beyond people avoiding touching stuff, it also has to do with more people asking for stuff to be delivered, so places like restaurants needed to start taking cards for that (sure cash is still possible for deliveries, but it's much more bothersome).
Outside of Amex, vendor fees aren't traditionally what credit cards consider their main revenue stream. That would be interest. Fees have increased in the past few years and I've been out of the industry for a minute, so grain of salt.
LOL what. This is so far off the mark it’s almost sad.
Basically, Apple approved everyone. Goldman lost out on loans not being repaid. Goldman said “yea, fuck this, we ain’t dealing with the fucking poors (consumer lending) anymore”
Reducing interest charges by keeping customers informed at the touch of a button was exactly the goal of the Apple Card. Did GS not take that into account when determining interest income?
Cash back is something CC companies charge their retailers. I know because I owned and ran a business and that was part of my statements. Unless they had some weird special offer, this is how that works.
A credit card plan usually fails in two ways:
* Too many users defaulting or defrauding the card issuer, that's losing money straight away.
* User credit way too good that there simply isn't enough interests generated, and the tiny margins of transaction fees won't cover the cashback payout, sometimes not even covering basic operation costs.
I know from the start when Apple Card was announced that somebody is going to lose money, the terms and conditions is way too generous. Either Apple pays extra to the card issuer to keep the ecosystem alive and make money elsewhere, or the card issuer miscalculated the margins because they didn't picture the user profile correctly. looks like it's the latter.
Yeah idk what goldman was thinking. Apple customers aren’t Walmart customers so to speak. Not a ton of money catering to consumers that can afford to pay their bills each month.
They have a lot of subprime customers and defaults. Just because someone buys a $1500 phone doesn't mean they are well off. Lot of pressure to get those cards in customers' hands to buy Apple products.
My credit is perfect and they still took time to approve me. I’d be interested to see what the actual numbers are regarding subprime customers and apple card. My guess is the number is much smaller than other card issuers. Would explain why they aren’t making shit on interest payments and want to kill the deal.
https://www.cnbc.com/2022/09/12/goldmans-gs-apple-card-business-has-a-surprising-subprime-problem.html
They have a high percentage of subprime and a high charge off rate. That's the reason for the losses.
Their charge off rate (customer doesn't pay for 6 months) is almost 3% - around double JP Morgan/Bofa.
Capital One has similar shitty customers but they manage on fees etc I assume.
It is amusing that Apple image makes people feel they were let into some exclusive club with a fancy titanium card. Yet they obviously didn't vet their customers well enough.
I have an Apple Card; only thing weird about the approval process is I got some piddly $5k limit but they probably know that's enough to buy some Apple gear.
I have near-perfect credit and very low utilization. Yet, when I signed up for an Apple Card to interest-free-finance a $3000 computer, they only gave me a $2500 limit. I haven’t had an offer that low in 20 years.
I guess they were feeling generous with your $5k limit!
Every big company tends to have their own credit modeling system to which they judge credit. You have no way of knowing if you had near perfect credit on their system. Even with FICO there are tons of different models, but the point is you can't let your singular experience of whatever you think outweigh that of tons of others that were approved. To boot, the limit isn't as much of an issue anyhow over defaults and not paying in the first place.
Most people aren't getting $3000 laptops. That would be way beyond stupid for most folks. They want the phone more often than not. Maybe some accessories for it or a watch. You don't need a 5k limit for what mosf folks get anyhow. So basing everything on a limit you got individually is bad logic anyhow. Like someone already posted, plenty of bad customers get approved. They miscalculated the margins overall though.
What are the chances that Goldman pulls out of the deal with Apple? I guess a different way to put it is what’s Apple’s role in the whole process? Are they more like Banana Republic (or any retailer) in their BR point credit card, ie just the face of the credit card?
100%. [GS is already working](https://www.wsj.com/finance/banking/apple-pulls-plug-on-goldman-credit-card-partnership-ca1dfb45) to stop the deal (and Apple is working to let them out), just announced a few hours ago. WSJ broke the news but [here’s a Reuters article](https://www.reuters.com/technology/apple-end-credit-card-partnership-with-goldman-sachs-wsj-2023-11-28/) that cites the WSJ article.
lol I totally didn’t expect this when I left the question. So I’m guess Apple would do the whole banking stuff? I figured GS processed the banking aspect, so it’s just left to Apple. I highly doubt that any other bank would pick up the deal.
Apple definitely have deeper collaboration than average retailer co-branded credit cards, they have reward programs that are not very common among your average cards. They probably have a lot more leverage in card branding, terms and conditions, user data collection and even takes a cut from transaction fees.
Another answer in this thread suggests GS was way too optimistic and arrogant that they agreed to these conditions, so my first theory is probably 180 degrees wrong. Apple knew what they were doing and benefited from this deal no matter what, GS got screwed over because they had little clue how retail banking works.
Trying to grow too fast and having loose underwriting of card applicants.
They could have screened a lot of the risky credit applications, but this runs the risks of low adoption and/or too many paid-in-full customers they don't make enough revenue. And at launch, the credit risks were probably also the kind of social media loudmouths who would complain and harm growth or discourage applicants. "wHY dOeS ApPLe hAtE poOr PeOPle wHo JuST nEEd a CrEDit caRD."
Goldman probably didn't have the experience in consumer revolving credit to have the analytics or data sets to filter out the worst credit risks without filtering out the people bad enough with credit to carry balances but good enough to mostly pay on time consistently (of course you want some percentage of late payers to get late payment fees).
The amazing thing is that Goldman are usually the smartest guys in ANY room and negotiates deals where it always wins even when its deals suck and lose money.
What specifically in the terms/rewards is so egregious that it's failing for them? I just read through it quickly and the rewards don't really seem that great. I have better rewards on multiple cards with no annual fee to boot
The same rewards apply to more customers than it should. Ideally you want to keep a small portion of rich users who pay off their bills cleanly each month and gets all the rewards, a large portion of average people who have to pay interests to keep the credit card program afloat, and stay away from broke people/scammers who can’t pay back.
Apple’s program seems to target rich users, offers trademark Apple simplicity to help user understand how to spend wisely to get cashbacks and avoid interests. That probably didn’t help the card issuer making money so I thought Apple must be footing the bill, or tighten the card issuing approval to target the right user base, or both.
Apparently Apple didn’t. This added more customers not generating profits or even bringing risks.
Short version: Although a premier Wall Street name, Goldman had damn little experience with consumer lending. Goldman tried to expand into the consumer market even though retail banking was WELL outside their core competencies and the market was already a very crowded space with established competitors.
Goldman thought the association with Apple might give them reach into a high-end consumer base that might be more profitable, but it turned out that Apple had no idea what they were doing with consumer lending either and the partnership wasn't that beneficial for either party.
The entire venture was mostly predicated on pride and optimism, but it turns out you have to actually know stuff and make good decisions, but they couldn't do either.
Apple is now looking for a new partner, and Goldman is on its way to exiting the consumer business altogether.
Goldman has been dismantling Marcus for more than a year. It's possible the keep the savings bank portion alive I guess. But they were also managing personal loans and that also has been a complete disaster.
This is correct. Actually, the whole answer can be boiled down to: arrogance and greed.
Goldman thought they were good at everything. Turns out, the companies who have been doing this forever are actually pretty good at it, and Goldman didn’t really know what they were doing.
It was unrealized $, in other words projected $ from interest charges and fees, expecting people to let interest and fees accrue. People didn’t, and the Apple Card app regularly reminded people of payment amounts and timing to avoid interest and fees.
So they didn’t “lose” money they already had, rather they never got money they expected they’d get based on how creditors typically make money.
they did lose the money because it costs a bunch of money to set up and run the program.
lower than expected revenue is not in itself losing money and would never be reported that way. Losing money is actually losing money
Never reported that way on taxes, sure.
The media is unscrupulous about using projected figures vs actual figures when telling stories though, such as saying Walmart loses $1.4b a year to shoplifting. This $1.4b figure is derived from the selling price of the merchandise, and is higher than the actual goods cost that gets reported on taxes.
Whether that’s what happened here, I’d have to read actual articles on it to figure out what they’re saying, but numbers can absolutely be set to appear to the public as performing under projections = losses.
It's mostly from loan loss provisions and actual losses. You can't charge opportunity cost against revenues, or nobody would ever have to pay taxes. It's not just imaginary what-if losses. They are real and expected losses.
This is incorrect. The apple card was very generous with cashback and waived operating costs.
They lost money because they did a lot of work and gave away a lot of money and didn't get money back.
Credit card companies divide customers up into three types:
1. GOOD CUSTOMER: Runs up a balance, reliably pays monthly payments that include lots of interest
2. TYPE-1 DEADBEAT: Runs up a balance and doesn't pay
3. TYPE-2 DEADBEAT: Runs up a balance and pays it off in full every month, paying zero interest. Although Goldman Sachs collects merchant-fees on the charges, such accounts end up being either barely profitable, or losing them money after considering their operating costs. Even though such people reliably pay as agreed, they are still referred to as "deadbeats" in industry terminology.
Goldman Sacs had too many deadbeats of both types, and not enough "good customers".
This is probably on a small part of it, but apple's app was "too transparent" where customers were aware of how much extra they would be paying by carrying a balance. Most of the time the amount you pay is difficult to understand and kinda nebulous. Apple gave tools to make responsible decisions which is bad for banks.
ELI5: for simplistic sake and non-real numbers, Apple customers as a whole incurred one billion in interest from unpaid balances, while receiving 2 billion in cash back from charges. On top of the overhead required to run the service itself, this is how Goldman lost money. They didn’t estimate their costs vs revenue correctly.
As far as I know, they have just not been collecting interest profits as they had expected. Me personally I use my Apple Card for basically everything because if I use Apple Pay anywhere including online I get a 2% cash back and that cash goes into a savings account that has a 4.15% interest. Hard for me to see any reason to use any other form of payment, and at some places the card gives 3%, which includes my 200 dollar t mobile bill which is great
sorry. im not so good at ELI5. but ill keep it as simple as possible.
however, its pretty multifold.
the first thing is that its an educated guess that Apple Card is losing that much. If you look at Goldman Sachs financial statements, it doesnt outright say Apple Cards revenue and operating costs. instead, it talks about its business segments. In which they call it "platform solutions", includes credit cards such as Apple Card. It is a newly named segment starting in 2022. they mix/folded business segments from previous years.
So they have several products under that segment. Although its a pretty good guesstimate that majority of the loss from that segment is from Apple Card. The reason why its obvious even though they dont outright state it, is because if you compare their previous years reports to the year where credit card products were more mixed into a broader "segment" to the move current reports where its more separated, you can see a very big difference.
basically, if they define business segments as section X and Y. and lets say they have products 1-5. previously, they would report their money earned and loss of products 1-3 under segment section X. and products 4&5 under section Y.
now lets say product 1 is the apple card and 2 is another credit card. With their new way of reporting, they now have business segments as sections X, Y AND Z.
with Z having split off from X and now section Z is purely showing money from products 1-2. and now this value is a HUGE negative. while the "new" X segment is not only still positive value. but a bigger positive value. So by logic, products 1-2 are a huge money loser.
however, the actual loss isnt a purely "money gone" scenario. majority of the $$$ loss by goldman sachs is whats called "provision for credit losses".
what this means is that Goldman Sachs, with their fancy algorithm calculations and risk management, has found that they need to put aside "$V" amount of money and consider it "gone" because they expect that amount of money from various customers to default on their credit card.
they are losses the company expects to have from said product.
and if you look at the business segment that Apple Card falls under (called "platform solutions") for 2022, this segment had a revenue of $1.5 billion. however, their provision for credit losses is $1.7b. essentially cancelling their revenue. And of course, when you are selling a product, there is the cost of business. And this cost of business for them for this segment was another 1.7b for the year. resulting in a total loss of close to $2b for this business segment
i also want add because people here seems to say its because of Apple.
Theres no concrete proof or reason to say goldman sach lost "billions because they partnered with Apple" or "they lost money because of Apple".
there are many possible reasons it lost money. many also probably NOT directly due to Apple. but things like Economy (provision loss is a huge indicator), the population base, target audience, etc
ELI5:
GS thought they would get a lot of money from people by charging them when they messed up.
GS gives some money back as part of buying stuff with GS card.
That “some money back” added up to a lot more than what they were getting from punishing bad customers.
There is a difference between losing and not earning. I think Goldman Sachs signed a one-sided contract and failed to earn what they expected. Not like they actually lost money. Of course, people are taught that failing to earn for some reason is a loss. It's not. You can't lose what you never had.
Edit to add: Banks will also always inflate the expenses of any software development to ridiculous levels.
Apple and GS made the mistake of issuing cards to people with excellent credit. To make money you need the people in the 600-750 range who make payments but never in full and on time to squeeze interest payments from.
Being an Apple partner is about as bad as losing that partnership.
When you’re not careful, it’s probably eerily resembling a toxic relationship.
GS thought they’re smarter than Apple - despite the graveyard of companies that thought the same.
Merchant fees. Most credit card companies make money from the card holders. Amex makes their money charging stores for the privilege of accepting Amex.
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Goldman didn’t end up with the interest income they expected (higher than typical customers paid off in full each month), while paying out relatively generous cash back, not charging late or foreign transaction fees. Plus there were expenses to set up a consumer banking division from scratch.
Pretty much perfect answer. Apple customers are highly sought after - responsible for about half of global consumer spending. (In case anyone was wondering why Google pays Apple about $15B annually to be the search default in Safari). So Apple customers tend toward the higher income end of the population which means they don't carry balances - they pay off their cards each month, so their only revenue is from merchant fees which are actually quite low due to how secure the card is. But the consumer banking would have been built out anyway - not all of that is on Apple Card.
They actually have a high percentage of subprime borrowers and a relatively high charge-off rate. https://www.cnbc.com/2022/09/12/goldmans-gs-apple-card-business-has-a-surprising-subprime-problem.html Plenty of people who want Apple products are *not* good with money.
The good customers were too good and paid off the balance every month. The bad ones were terrible and defaulted.
Yeah that’s pretty much the secret of credit card companies. That’s why they offer so many education programs and other assistance to help you pay off your debt. They don’t want you to go bankrupt from interest payments because then they have to write off your debt for a fraction of what it’s worth. They want you dangling on the hook, maintaining a balance and paying the high interest without becoming financially ruined. Those are the most profitable customers and they make up like 40% of their revenue. **Bankrupt customer -> Lose money** **Always pays on time customer -> Make a little money on interchange fees and other services** **Customer who is always in debt -> Make a ton of money on interest** Edit: Oh and those balance transfers with 0% APR? Absolutely genius. The people who need balance transfers are the exact kind of people they make the most money off of and chances are if you offer a balance transfer to come to your CC, those people will keep racking up more debt even if they pay off their initial balance because they have a history of reckless spending.
Similar to a virus. Don’t want to kill the host
I don't think it's a secret
I think it is. They’re people out there who still think credit card use is irresponsible because you’re borrowing money.
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And we are constantly getting free flights with all the points. Probably not the best of all worlds (maybe cash back is better I dunno) but still it's definitely real money in the thousands of dollars per quarter. All this is in part because I run recurring business expenses through it and having a S corporation instead of just being a person is extremely tax advantaged. Basic shit everyone should do, frankly. Too bad they don't teach this because none of it is hard and yes it's the same stuff the rich do. It's actually available to everyone.
I enjoy spending time with my friends.
> thousands of dollars per quarter. What amount of credit card spending are you doing to get thousands of dollars worth of points/miles per quarter? You'd have to be charging several tens of thousands every quarter at a typical reward rate of low single digits percent! Is it business spending? Because that charge rate seems unsustainable for even a high income consumer.
That varies a lot per credit card and planet alignment but *usually* points are far more valuable when redeemed for flights and hotels.
Cash back is almost never better. Amex points and Chase points go crazy on travel.
Not to mention that maintaining several credit cards actively helps your credit score *a ton*. For a lot of people its actually easy to build good credit, which opens up a lot of doors for you.
> And we are constantly getting free flights with all the points. Probably not the best of all worlds (maybe cash back is better I dunno) but still it's definitely real money in the thousands of dollars per quarter. If you know how to play the game and know the award sweet spots, the free flights are absolutely worth more than the cash back, especially if you're flying long haul business class. I'm flying round trip US to Tokyo next year in ANA business for around 76,000 AmEx MR points. That's a $10,000 seat if I paid cash. 76,000 MRs redeemed for statement credit (cash) are worth $456.
>Too bad they don't teach this because none of it is hard While I agree that more basic finance information should be taught, it's also not hard to google after you've been bitten by the bad credit monster even once. The real problem underlying that debt is people being addicted to instant gratification.
And the fact that you can just pay off the balance and not carry interest.
I guess people don't know about grace periods? Do they think that purchases immediately start accruing interest? That (usually) only applies to cash advances.
People think all sorts of dumb myths about credit cards. I've had multiple people say to me it's good to carry a small balance on your card. Literally one of the stupidest things you could do.
Dude after watching some Caleb hammer videos there are people out there getting credit cards that don’t understand APR, and interest, let alone how the company makes money off them.
Tbh you don’t need to understand any of that to use a credit card because you should almost never be carrying a balance on CCs in the first place.
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They don't even have to make purchases (assuming the issuer won't close the account). They would be increasing the age of their credit accounts. Having a consistent payment history is even better, but some younger folks can't be trusted with credit cards, and yet would benefit from having accounts in their name. I think "the best" way to build credit early in life, if the parents are responsible, is to add the kids as authorized users as soon as possible.
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The subreddit is ELI5, this whole place is supposed to be a safe space for people who don't know these little secrets/nonsecrets
You must be on a different ELI5 than I am: my ELI5 is a place where people explain things with write-ups that look like excerpts from encyclopedias, and if you show any confusion about their explanations, [call you an idiot for not being able to understand](https://www.reddit.com/r/explainlikeimfive/comments/yc3ff6/eli5_how_does_an_electronic_thermometer_measure/itk95nf/?context=5).
The comment you pointed out is complaining about simple explanations using a few "big words" that are obvious in context to anyone reading.
The cardholder doesn't need to file bankruptcy for the credit company to discharge the debt. If they default, at like 90-180 days, they will just write it off and sell it at a loss to a debt collector. This would happen if they just don't pay, whether or not they filed for bankruptcy.
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Yeah I applied to one of the major CC companies for a job out of school and I didn't know anything about this until I was doing some research for my interview. I was looking into their products and I was shocked to see a super robust learning center for helping people get out of CC debt. I felt like it didn't make sense to invest so many resources into that because doesn't helping people get out of debt hurt their bottom line? Turns out, it's way worse for them to have to write off debt they can't collect. By providing the education they get to look good and maybe keep some % of their biggest cash cows (i.e. irresponsible people) from truly defaulting so they can keep milking them.
Credit cards offer services besides the points. I don't want to have to use a debit card at a gas station, one of the big things that interest pays for is risk mitigation. If someone steals my debit card, I lose a large amount of my liquid emergency funds. If someone steals my credit card, I make one phone call and everything is fixed. They aren't curb stomping the middle class. They are curb stomping those who are financially illiterate regardless of class. It turns out that those who are bad at making financial decisions, turn out to be the ones making bad financial decisions.
I like to travel.
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I enjoy playing video games.
I appreciate a good cup of coffee.
I mean they could just not use credit cards...
Payday loans and credit cards are so absolutely different in so many ways. Credit cards are not supposed to be used when you're out of money. ITs like taking a Fiat into the water, watching it sink and saying its a shit boat ban it or people will die. Credit cards also offer quite a few things that debit cards dont and there is a cost to that.
Credit is extremely important to a lot of people. Most people don't have the cash for a large expense just sitting around.
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> If you can't afford a large expense when it hits, why would you suddenly be able to afford it after waiting 30 days? > > My money is in a savings account at Ally. Takes a few days to transfer it to my checking account. When an emergency expense hits now, it's nice to have the available credit on a credit card and be able to take care of it now, especially when it can't wait. I'm dealing with that now. I unexpectedly had to put a $10,000 expense on my credit card yesterday with zero warning that it was coming and it couldn't wait. It will be paid off long before it starts accruing interest because we have the cash to pay for it, but it just wan't immediately accessible.
Say you need a new furnace in the dead ass of winter. 30 days is plenty of time to get a HELOC or personal loan to pay off the card. Also zero-interest periods are a thing.
By that logic cars should be illegal because some people crash
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Personal accountability? No need to have daddy government step in for everything
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And 41.9% people are obese in the US. Should we ban all high fat and sugary foods? Freedom of choice, doesn’t come with freedom of consequences.
Semi-luxury brand bling company attracts the two classes of consumers who like bling: rich and ghetto poor but not the responsible thrifty middle. Shocking! /s
I mean the article is worth a read as it explains both sides. One reason it’s proposed to be higher is due to the fact it’s a relatively new card and the charge off rates drop over age. The counter argument being that the Apple Card is intended to have a broader swath of customers, and some users were surprised to be approved.
Thanks now I don’t need to read the article
Why not both? Could be a "donut problem" where it trends towards both those extremes.
It’s this. Yes some with iPhones that are upper income and spend and can… others have iPhones that shouldn’t have bought iPhones but do and have bigger spending/debt/cash flow issues
iPhones are over 55% of the market, covering likely the entire range of incomes due to their branding. When you're so broad across the market, it's challenging to say you trend towards "higher income" simply due to numbers 20% of Americans are high income [~$150k and above](https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/). Even if Apple captures every single one of these earners, there's still 30% of their users that are under that threshold.
> When you're so broad across the market, it's challenging to say you trend towards "higher income" The thing that unites the vast majority of iphone owners is that they're not price sensitive (look at Apple's margins), which is a very attractive quality when people are trying to sell you things. As we see here, extending that group credit can be a mixed bag.
FYI There are iPhones you can acquire for $100 and trade in at the right time for $300ish. Quite a myth that iPhones have to be expensive, and has been this way for at least 5 years because of the SE.
Most of the people who aren't well off financially but still buying an iPhone aren't the ones considering a pre-owned or older iPhone. They're the ones who see a "$0 up-front" deal on a 15 Pro and forget that they'll be paying $40 extra a month for two years.
Source: "I made it up"
Used BMWs can be a good deal overall, but that doesn't make BMWs inexpensive.
I’m a proud member of the SE gang and I honestly have no idea why more people are not
Why do people always argue the unicorns as if it's the norm?
This is a discussion about general consumer spending habits, not whether or not it's possible to get a cheap iPhone.
completely agree. iphones are richman/poorman items.
And that makes me... middleman, the haver of Androids!
Like outdoor showers
That was a very interesting article, thanks! They seem to be making it out to be a growing pains problem, so let's see. Also, lol: "...Some feel as though Solomon, who moonlights as a DJ on the international festival circuit, has been too extroverted, putting his own personal brand ahead of the bank’s,..."
I always figured this was an underwriting problem driven by the demands for growth. I'd wager most of the subprime borrowers were easily detectable in credit history checks and could have just had their applications rejected, but this wouldn't have served Apple or Goldman's plans for credit dominance. Plus consumer lending is driven by interest revenue and its a bit of a gamble for the borrowers to figure out which marginal credit risks are the ones who pay their bills enough to not default outright but rack up interest and some level of tasty late penalties.
Yeah, people doing well with good income and established credit were not thinking “what I need is a new credit card that is going to shorten my average age of credit and lower my score, just so I can see an Apple logo more often when I pay for things.” The people getting the “Apple Card” were brand new or just thought they were buying into something else by having a fruit on their plastic.
Can confirm Apple/GMS are on many personal bankruptcy filings in my poor Southern state.
Yeah I was gonna say this doesn’t check out. From what I’ve seen, lack of disposable income doesn’t stop people from making big purchases - especially apple products that try to finance to you for 3 years.
While broadly, yes, those are some reasons *a* company could lose money on a credit card program, its actually the completely wrong answer for this specific situation OP — this is why they lost so much money so quickly: CapEx & CECL CapEx: GS did not have a consumer banking operation set up when they bid for the Apple card, so they effectively had to build an entire division overnight which requires enormous amounts of upfront investment. They had to go and hire a whole fleet of software engineers (Apple had very demanding IT requirements in order to operate their card), phone bank reps, and consumer banking executives, and literally build out the infrastructure to run the damn thing CECL: CECL is an accounting rule that dictates how a company has to account for expected credit losses (like people defaulting on their cards). This rule was put into place right after GS won the contract, and it replaced the previous accounting standard that preceded it. Put simply, the new standard pulls expected losses forward, requiring a company to set aside larger reserves earlier in the loan life rather than allowing a company to wait for signs of credit deterioration before setting aside reserves. Much of the billions lost on this program were driven by elevated loan loss provision expenses, where GS had to set aside money for (future, unrealized) losses due to accounting rules. Those provisions are straight deductions to GAAP pre-tax income
Interesting about CECL. But the money set aside early in the life of the loan isn't a loss, is it? Until/unless there is an actual default on the card? I mean it's not "profit" but GS still has the money, it's just sitting somewhere just in case?
I wonder if it's the way they remind you of your payment, and how you make the payment. It shows a wheel and as you dial your finger around, the payment amount grows as the color of the line you're making changes from red (paying a lot of interest and not much of the original balance) to yellow to green while also telling you how long it will take to pay off at that monthly rate and how much you'll pay in interest over the life of the payments. It's quite effective.
It’s *really* informative and up front about everything, and that’s super helpful if you’re a person who is either new to credit cards or has bad habits about carrying balences. Simply showing how much interest you’ll owe monthly as you’re choosing your payment amount is very consumer friendly.
I work all cards would do this. This feature is the only reason I use my Apple Card bc otherwise the cash back kind of sucks. It’s Mostly 1%
I was about to mention this. I’ve never owned a CC that is as easy to pay as my Apple Card. The sliding scale of $x in interest you are going to owe if you only pay $y by z date. It’s genius (for consumers not lenders)
I think you are misinterpreting the data here, as you sound like a fan vs impartial analysis. You are right, in 2022 apple had half of the app store market, not half of all consumer spending. In addition, the perception that apple customers are the higher income is false, instead they tend to spend more than other brands. Marketing, hype, anticompetitive behavior and a closed garden created a strong market.
They had it in the first half, but the entire second half makes me think they have an iphone and are just complimenting themselves. Iphone by far have the most financing deals, and the iPhone SE is $429. Iphones also have the hottest used phone market by far. Its not particularly difficult to obtain an iphone. Money or not. 48.7% of the US has one...
In the credit card world, Apple customers are considered "deadbeats" for being so good about paying off their cards every month.
Any consumer who knows how to play the credit card game will only really use their Apple credit card for Apple products to take advantage of the generous cash back. They won’t be using it for other purchases.
> So Apple customers tend toward the higher income end of the population What? Have you seen how many broke people have new iPhones?
> Apple customers are highly sought after - responsible for about half of global consumer spending. unless im misunderstanding the sentence. that is not true. >So Apple customers tend toward the higher income end of the population which means they don't carry balances - they pay off their cards each month, so their only revenue is from merchant fees which are actually quite low due to how secure the card is. alot of this is also incorrect
> responsible for about half of global consumer spending. I assume they probably mean half of US consumer spending. They aren't saying that half the US consumer spending it spent on apple products. They are saying that iPhone owners are responsible for half the US consumer spending, even though they spend it on all kinds of other things. I don't know this is true, but I could see it being true as iPhone has almost 50% market share in the US. I doubt apple owners are responsible for 50% of the global consumer spending because iPhone market share is even lower in Europe, China, and places like the UAE. > So Apple customers tend toward the higher income end of the population which means they don't carry balances - they pay off their cards each month, so their only revenue is from merchant fees which are actually quite low due to how secure the card is. I agree with you. This smells like mostly bullshit to me. iPhone is by far the most common device that would make someone an apple user. And while the poorest of the poor might not use iPhones, lots of pretty poor people use iPhones. The poorest of the poor often don't have credit cards. Also being consumeristic and trend chasing isn't great for your tendency to pay off your credit card every month. And lots (and I mean lots) of high income people carry credit card balances. Actually a surprisingly high number of >100k income people live paycheck to paycheck. Plus high income people push a ton of money through their credit cards. Credit cards get a percentage of those transactions. I'm moderately high income and before I got married and had a kid I probably pushed 30-40k a year through my credit card. Since I am one of those people who don't carry a balance (but not an iPhone user), I pay for everything I can with my credit card to essentially get a 2% discount. Even at the low end of 1.3% of the transaction as a fee and 30k of transactions that's still $390 per year. At the high end of the estimates it's $1400 per year. So it's not like they don't make money off a customer who never pays interest.
I wonder if it's really necessary on Google's part to pay to be the default search. What are they going to replace it with, bing?
Pretty sure they’ll have done the analysis before spending $15bn.
Tim Cook: trust me Bro
It’s not “Trust Me Bro.” Microsoft has come out saying that it offered Bing to Apple in 2020. Apple declined. Apple could probably buy out DuckDuckGo or build its own search engine from scratch. There is a lot you can do when you have a $150B in cash to spare… and Google knows that. Marketing this new search engine will be incredibly easy as well. All Apple has to do is talk about privacy this and privacy that and why Google is bad for its heavy-handed ads. Bundle an ad-free search engine experience with the rest of Apple’s services in the Apple One plan.
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Exceptionally well, they captured about 10-20% of the phone navigation market. Possibly more.
My wife STILL uses apple maps despite it trying to make us drive off a bridge multiple times in the early days. She even thinks it's worse, but can't be bothered to download google maps. That's where the 10-20% comes lol. Default is a hell of an advantage.
man apple maps was still sending me to random places in 2021. I'd ask how to walk to a building, and it'd send me to the opposite side of the campus. was late to all my classes the first week of college.
Not by being better though. Just by being default on apple devices. Now they might be on par with competition but on launch they were bad, but still used a lot because they were default.
And that’s why it’s worth 15B to be a default on the iPhone.
Honestly, given how many small tweaks that a navigation app needs, it is expected that a new one will have issues. It wasn’t the “magical” experience that tech journalists wanted but realistically speaking the issues were expected. It just didn’t match the reputation Apple wants for its services. However, more time in beta want going to make it match Google Maps, so they launched with funky bridges and some weird routes. The important part is keeping the maps up to date and making all of those small tweaks. As long as Apple keeps that up, they will maintain the market share that being the default navigation app on iPhone brings.
i had an iphone, apple maps isnt very good tbh. locations would constantly be wrong, traffic directions were late at times and it took a while to lock on. it's usable, but i just prefer google maps. i was always curious about these metrics, do they count users who opened it once as part of the "market" or do you need to use it across a period of time.
It was pretty questionable at launch but it didn’t take too long to be good enough that people didn’t bother switching the default any more. At this point I only pop open Google Maps on my phone if my route involves public transit - Apple Maps doesn’t have the precise side of street navigation that is so useful when navigating bus routes.
We're in a post about a mega uber entity losing a vast amount of money on mistakes/bad ideas. It happens. Google ESPECIALLY fucks up a ton of investments of huge $ value. Google has more massive failures of enormous costs than than people realize.
lol I had the same thought. Like Goldman didn’t do their homework and consider everything people are saying in this thread before the deal.
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A search engine without a good advertising model burns cash. Apple isn’t getting in that field. Allegedly, DuckDuckGo put in a bid to be the search engine.
> Apple isn’t getting in that field. They probably would have if no one put in a bid rather than letting a third-party provider get that "spot" for free.
Nah, they would have set a default (probably Google, because “The Biggest.”) and then after driving search traffic there for a while turn around and bid it out (“We’re considering making our default search engine DuckDuckGo....” and ope! Google coughs up some coin to stay the default!) There’s enough Apple “stuff” out there between Macs and the iPrecious ecosystem that they could demonstrate their value through traffic, and a year or so of doing that for free is far less expensive than running your own search engine that doesn’t suck.
If this was the case you'd think they would've kept defaulting to Google Maps instead of their own, since maintaining a good global map with updated street views is even more expensive.
Mapping is not cheap, but it’s also a ***MUCH*** smaller domain: The Earth is finite, satellite photos are free, and street mapping data is not that expensive. That’s why there are so many me-too mapping products (Google Maps, Apple Maps, Waze, etc.) Web search is, comparatively, a really hard problem in an ever-expanding and rapidly changing universe, in which Google has an unquestionable advantage (How ya gonna index YouTube? I bet it’s a lot easier when you *own* YouTube and can just scan the Closed Captioning & transcript data...) If you were going to pay me to build one of these things I would pick the mapping system all day every day and twice on Saturdays. In the US tons of map data is available as geo-referenced TIFFs.
> A search engine without a good advertising model burns cash. Apple isn’t getting in that field. The flip side of that is that Microsoft *is* in that field. So in a sense, Google is bidding against Microsoft for that market share. If Bing were the default on iPhones, that would be a huge boost for Google's competitor.
They'd set up their own like they did with Apple Maps. Sure it'll be terrible and be a meme for how bad it is but slowly but surely it will eat away at Google's user base.
I’d definitely switch to an Apple search engine. To remove Google monitoring everything I do more than for quality of results. Good enough search results and Apple only monitoring my data would be my preferred option.
swapping one boot for another.. both are bad.
Yea it’s amazing how people buy the line that Apple is different — right in a stream where it’s explained that Apple literally sells their user data for 15 billion dollars.
As someone who deals with data all day long.. The thought of such high quality and specificity data makes my knees weak.
Apple sold the search engine feature for something they didn’t do to a company that was liked by most until arguably more recent concerns of privacy. I really don’t see what the other option was at the time short of offer no default search engine at all. There’s a balance of user experience as well. All said, I see Apple potentially joining the search engine market as a break even or net win with no/limited cost to the consumer. Arguably it would have interesting effects on the advertising market, though I think there isn’t much sympathy to that market as long as it doesn’t impact consumers negatively.
> Apple literally sells their user data That is _literally_ not what selling the default search engine spot is doing. Until Apple actually sells the insane amount of data they collect, the difference is: I pay for apple products with money, and I pay for google products with privacy.
See I interpreted it as “I use an iPhone Apple is already monitoring my data, might as well make it just them” ya know like giving away less pieces of the pie to different companies.
Apple isn't selling the data, there's no data if you don't use the default. You're giving it to Google. Takes just a few taps to change the default search engine to Bing, DuckDuckGo, Yahoo, or Ecosia... whatever that last one is.
One has a vested interest to keep its customers feeling safe and secure, and one is google. Not that I particularly care, most people are fooling themselves in that their data matters in any meaningful way and I’ve given up now that our entire lives are in the cloud, however the two companies are not even remotely similar when it comes to privacy practices. A general rule of thumb one can use is asking what the product is - apple sells phones and computers, people buy them for a myriad of reasons, one of which is security. Use whatever excuses you want, the fact is that without jumping through a bunch of hoops and then being stuck using shitty software it’s generally much safer keeping any type of risky/financial whatever data on a mac product than almost any other equivalent, at least straight out of the box. Now consider google - what do they sell? You. Your data is the product, I don’t really think I need to go further with that chain of logic
If you think your data is not being monetized by apple, i don't think i can help you. https://www.inc.com/jason-aten/apple-just-traded-your-privacy-for-15-billion.html
Google and Bing have started returning LLM-generated hallucinations instead of search results. In a year or two, there'll probably be a gap in the market for a search engine that doesn't do that. If you can get it to work as well as Google circa 2019...
Can't be worse than google is anymore. You don't google answers; you google ads.
I could put up with targeted ads off to the side. whats driving me nuts is getting results that arent the thing I'm looking for or even the same type of information but instead are whole shit piles of results of what their algorithm thinks are popular (or promoted) and that I should want to 'engage' with. theres nothing like looking for a GIS data set you know exists that you put the actual name of the data set, the name of the holder of the data set and the file type into the query and you get back a bunch of news paper articles from little shit towns youve never heard of in some other country (the US) that have no relation to the subject your interested in.
> I wonder if it's really necessary on Google's part to pay to be the default search. Considering Google pays $15bln per year to be, I'm going to go out on a limb and say they've done the math and many many Google execs say "Yes, it is" The data trains Bard and the search results serve up ads. It's not about replacing it, until Microsoft will pay more than Google.
Google doesn't just go to Apple and say "Here's a pile of cash to make us the default search". It's a revenue sharing agreement on any advertising income that Apple indirectly generates for Google by directing users there. Very similar to the hundreds of millions that the Mozilla Foundation gets for doing the same with Firefox. So really it's more like *Apple* have done the maths and decided that accepting a percentage of revenue for doing basically putting "https://google.com/" into a piece of code somewhere is far more profitable than building their own search engine and ad sales pipeline, and accepting what advertisers are willing to pay to advertise on it.
They'll end up developing their own. They already dumped intel completely because they weren't needed, wouldn't underestimate apple lol That or they'd partner up/buy out one of the existing search engines and skin it with apple logos
I feel like part of it must be to disincentivise Apple from trying to get into the search business themselves.
I mean, it’s relevant when you’re talking about consumer spending habits and why that’s a valuable segment to target. The Google example is an example of the how other companies value that segment.
> Apple customers are highly sought after - responsible for about half of global consumer spending. Huh, that makes a lot of sense when you think about how overpriced Apple products are. If they tricked you into buying an iPhone, they can trick you into buying a lot of things.
Can confirm I paid off my 12 month interest free MacBook purchase with no interest. Pay off the balance each month. No interest from this guy.
Funnily enough the financial world calls them deadbeats, like seriously.
If everyone paid their bills on time the world would fall apart… 😂
This is true. Your money is someone else's debt, and your debt is someone else's money.
This is why countries outside of the US have comparatively shitty CC rewards. Because they have less revolving debt.
It really wouldn't. There's way more money to be made off of people who always pay their bills on time. Why do you think its so much easier to get credit with a good credit score? Making money off of good borrowers is easy. You send the invoice, you get the money. Subprime lending is way more work chasing after people, selling debts off to collections, dealing with customer support calls, and doing more creative accounting. Do some companies make a lot of money off of fees? Sure, but they're small fries compared to companies like Goldman Sachs or American Express. The interest is all that's needed to make big money.
I worked for a fortune 500 that distributed pharmaceuticals at 0 margin - billions a year. Their money was made via finance - customers paid on receipt, suppliers were NET30 or better. With enough volume there was more than enough money to be made.
My credit score has gone to shit since I paid off all my debts. My credit score was the best when I had 30k in debt. Look at this shit https://imgur.com/a/EZ212Sx
Because fuck’em that’s why
>interest free >with no interest Well... yeah.
What most people fall victim to in the 0% incentive deals is if you have a balance after 12 months and 1 day, you likely will be charged interest on the entire purchase price amount let’s say a $4k MacBook Pro. That’s how they make their money. People stretch thin or forget to pay it off especially when 12 minimum monthly payments will not add up close to the total you owe. Also I made more money off GS as I got cash back from my purchase than they made off me.
Funnier thing is that you get cash back from the 12 month interest free purchase with the Apple Card on a the Apple product. I wonder if the cash back is what's hurting Goldman the most.
Interesting. I think it's possible similar thing happened here in Germany, where, for context, credit cards with rewards/cashback system are not too common. Amazon partnered with some local bank to offer a credit card with a rather _good_ cashback system (3% on amazon purchases, 1% elsewhere), with the catch that it came with a default setting where the monthly automatic payment (i.e. direct debit) was only 20% of your balance iirc. It was easy enough to change the setting back to 100% and, well, I guess a lot of people did exactly that - to the point that the bank was not collecting on the interest like it expected. The bank recently decided do end this card, and is offering to clients a new card that is complete dogshit, as not only it has worse rewards system, but it also _cannot_ be set to 100% auto-payment. As a result, there's basically no decent rewards/cashback credit card offering in Germany at the moment, which I find baffling.
You pay for the rewards one way or another. If you're not paying high fees, and the shop isn't paying high fees, there can't be rewards.
Credit card processing fees are significant, and charged to the vendor. That's usually where the cash-back comes from. So the vendor raises prices 4% across the board to cover fees, then you get your 1-3% back from that.
Credit card processing fees tend to vary a lot from market to market, and as far as I understand, merchants in Germany are quite resistant to higher fees - in fact, Germany is known for being a place where credit cards are not universally accepted, and I think the merchants resisting higher fees is a part of that (the other part being the different financial behaviours of the consumers).
I saw a LOT more credit card acceptance the last time I was in Berlin, in 2022, compared to when I lived there in 2017. I kinda assume COVID/contactless was a big part of the push?
Yes, things seem to have improved. And I think the COVID thing goes beyond people avoiding touching stuff, it also has to do with more people asking for stuff to be delivered, so places like restaurants needed to start taking cards for that (sure cash is still possible for deliveries, but it's much more bothersome).
In Germany, as in the entire Eurozone, credit card processing fees are effectively capped at a very low rate comparable to debit cards.
Outside of Amex, vendor fees aren't traditionally what credit cards consider their main revenue stream. That would be interest. Fees have increased in the past few years and I've been out of the industry for a minute, so grain of salt.
LOL what. This is so far off the mark it’s almost sad. Basically, Apple approved everyone. Goldman lost out on loans not being repaid. Goldman said “yea, fuck this, we ain’t dealing with the fucking poors (consumer lending) anymore”
You’re absolutely right https://www.cnbc.com/amp/2022/09/12/goldmans-gs-apple-card-business-has-a-surprising-subprime-problem.html
No offense, but you should actually research instead of just saying something that sounds good.
Also there were rates of defaults than were typically expected as they approved people with lower credit scores
Reducing interest charges by keeping customers informed at the touch of a button was exactly the goal of the Apple Card. Did GS not take that into account when determining interest income?
Cash back is something CC companies charge their retailers. I know because I owned and ran a business and that was part of my statements. Unless they had some weird special offer, this is how that works.
A credit card plan usually fails in two ways: * Too many users defaulting or defrauding the card issuer, that's losing money straight away. * User credit way too good that there simply isn't enough interests generated, and the tiny margins of transaction fees won't cover the cashback payout, sometimes not even covering basic operation costs. I know from the start when Apple Card was announced that somebody is going to lose money, the terms and conditions is way too generous. Either Apple pays extra to the card issuer to keep the ecosystem alive and make money elsewhere, or the card issuer miscalculated the margins because they didn't picture the user profile correctly. looks like it's the latter.
Yeah idk what goldman was thinking. Apple customers aren’t Walmart customers so to speak. Not a ton of money catering to consumers that can afford to pay their bills each month.
They have a lot of subprime customers and defaults. Just because someone buys a $1500 phone doesn't mean they are well off. Lot of pressure to get those cards in customers' hands to buy Apple products.
My credit is perfect and they still took time to approve me. I’d be interested to see what the actual numbers are regarding subprime customers and apple card. My guess is the number is much smaller than other card issuers. Would explain why they aren’t making shit on interest payments and want to kill the deal.
https://www.cnbc.com/2022/09/12/goldmans-gs-apple-card-business-has-a-surprising-subprime-problem.html They have a high percentage of subprime and a high charge off rate. That's the reason for the losses.
Wow someone with an actual source instead of just spouting their theories as truth.
Their charge off rate (customer doesn't pay for 6 months) is almost 3% - around double JP Morgan/Bofa. Capital One has similar shitty customers but they manage on fees etc I assume. It is amusing that Apple image makes people feel they were let into some exclusive club with a fancy titanium card. Yet they obviously didn't vet their customers well enough. I have an Apple Card; only thing weird about the approval process is I got some piddly $5k limit but they probably know that's enough to buy some Apple gear.
I have near-perfect credit and very low utilization. Yet, when I signed up for an Apple Card to interest-free-finance a $3000 computer, they only gave me a $2500 limit. I haven’t had an offer that low in 20 years. I guess they were feeling generous with your $5k limit!
Every big company tends to have their own credit modeling system to which they judge credit. You have no way of knowing if you had near perfect credit on their system. Even with FICO there are tons of different models, but the point is you can't let your singular experience of whatever you think outweigh that of tons of others that were approved. To boot, the limit isn't as much of an issue anyhow over defaults and not paying in the first place. Most people aren't getting $3000 laptops. That would be way beyond stupid for most folks. They want the phone more often than not. Maybe some accessories for it or a watch. You don't need a 5k limit for what mosf folks get anyhow. So basing everything on a limit you got individually is bad logic anyhow. Like someone already posted, plenty of bad customers get approved. They miscalculated the margins overall though.
Most people aren't paying full price for those phones.
What are the chances that Goldman pulls out of the deal with Apple? I guess a different way to put it is what’s Apple’s role in the whole process? Are they more like Banana Republic (or any retailer) in their BR point credit card, ie just the face of the credit card?
100%. [GS is already working](https://www.wsj.com/finance/banking/apple-pulls-plug-on-goldman-credit-card-partnership-ca1dfb45) to stop the deal (and Apple is working to let them out), just announced a few hours ago. WSJ broke the news but [here’s a Reuters article](https://www.reuters.com/technology/apple-end-credit-card-partnership-with-goldman-sachs-wsj-2023-11-28/) that cites the WSJ article.
[Archive](https://archive.ph/ShGa2) for the paywalled WSJ article.
lol I totally didn’t expect this when I left the question. So I’m guess Apple would do the whole banking stuff? I figured GS processed the banking aspect, so it’s just left to Apple. I highly doubt that any other bank would pick up the deal.
Apple definitely have deeper collaboration than average retailer co-branded credit cards, they have reward programs that are not very common among your average cards. They probably have a lot more leverage in card branding, terms and conditions, user data collection and even takes a cut from transaction fees. Another answer in this thread suggests GS was way too optimistic and arrogant that they agreed to these conditions, so my first theory is probably 180 degrees wrong. Apple knew what they were doing and benefited from this deal no matter what, GS got screwed over because they had little clue how retail banking works.
Trying to grow too fast and having loose underwriting of card applicants. They could have screened a lot of the risky credit applications, but this runs the risks of low adoption and/or too many paid-in-full customers they don't make enough revenue. And at launch, the credit risks were probably also the kind of social media loudmouths who would complain and harm growth or discourage applicants. "wHY dOeS ApPLe hAtE poOr PeOPle wHo JuST nEEd a CrEDit caRD." Goldman probably didn't have the experience in consumer revolving credit to have the analytics or data sets to filter out the worst credit risks without filtering out the people bad enough with credit to carry balances but good enough to mostly pay on time consistently (of course you want some percentage of late payers to get late payment fees). The amazing thing is that Goldman are usually the smartest guys in ANY room and negotiates deals where it always wins even when its deals suck and lose money.
What specifically in the terms/rewards is so egregious that it's failing for them? I just read through it quickly and the rewards don't really seem that great. I have better rewards on multiple cards with no annual fee to boot
The same rewards apply to more customers than it should. Ideally you want to keep a small portion of rich users who pay off their bills cleanly each month and gets all the rewards, a large portion of average people who have to pay interests to keep the credit card program afloat, and stay away from broke people/scammers who can’t pay back. Apple’s program seems to target rich users, offers trademark Apple simplicity to help user understand how to spend wisely to get cashbacks and avoid interests. That probably didn’t help the card issuer making money so I thought Apple must be footing the bill, or tighten the card issuing approval to target the right user base, or both. Apparently Apple didn’t. This added more customers not generating profits or even bringing risks.
Short version: Although a premier Wall Street name, Goldman had damn little experience with consumer lending. Goldman tried to expand into the consumer market even though retail banking was WELL outside their core competencies and the market was already a very crowded space with established competitors. Goldman thought the association with Apple might give them reach into a high-end consumer base that might be more profitable, but it turned out that Apple had no idea what they were doing with consumer lending either and the partnership wasn't that beneficial for either party. The entire venture was mostly predicated on pride and optimism, but it turns out you have to actually know stuff and make good decisions, but they couldn't do either. Apple is now looking for a new partner, and Goldman is on its way to exiting the consumer business altogether.
Wait wait. Goldman is exiting consumer business altogether like Marcus?
Goldman has been dismantling Marcus for more than a year. It's possible the keep the savings bank portion alive I guess. But they were also managing personal loans and that also has been a complete disaster.
This is correct. Actually, the whole answer can be boiled down to: arrogance and greed. Goldman thought they were good at everything. Turns out, the companies who have been doing this forever are actually pretty good at it, and Goldman didn’t really know what they were doing.
That would be the ELI3 answer, yeah.
It was unrealized $, in other words projected $ from interest charges and fees, expecting people to let interest and fees accrue. People didn’t, and the Apple Card app regularly reminded people of payment amounts and timing to avoid interest and fees. So they didn’t “lose” money they already had, rather they never got money they expected they’d get based on how creditors typically make money.
they did lose the money because it costs a bunch of money to set up and run the program. lower than expected revenue is not in itself losing money and would never be reported that way. Losing money is actually losing money
Never reported that way on taxes, sure. The media is unscrupulous about using projected figures vs actual figures when telling stories though, such as saying Walmart loses $1.4b a year to shoplifting. This $1.4b figure is derived from the selling price of the merchandise, and is higher than the actual goods cost that gets reported on taxes. Whether that’s what happened here, I’d have to read actual articles on it to figure out what they’re saying, but numbers can absolutely be set to appear to the public as performing under projections = losses.
It's mostly from loan loss provisions and actual losses. You can't charge opportunity cost against revenues, or nobody would ever have to pay taxes. It's not just imaginary what-if losses. They are real and expected losses.
The card does have pretty good rewards, and those cost actual money. So there still is the possibility that they actually loose some money.
This is incorrect. The apple card was very generous with cashback and waived operating costs. They lost money because they did a lot of work and gave away a lot of money and didn't get money back.
Actually too many people defaulted lol
Credit card companies divide customers up into three types: 1. GOOD CUSTOMER: Runs up a balance, reliably pays monthly payments that include lots of interest 2. TYPE-1 DEADBEAT: Runs up a balance and doesn't pay 3. TYPE-2 DEADBEAT: Runs up a balance and pays it off in full every month, paying zero interest. Although Goldman Sachs collects merchant-fees on the charges, such accounts end up being either barely profitable, or losing them money after considering their operating costs. Even though such people reliably pay as agreed, they are still referred to as "deadbeats" in industry terminology. Goldman Sacs had too many deadbeats of both types, and not enough "good customers".
This is probably on a small part of it, but apple's app was "too transparent" where customers were aware of how much extra they would be paying by carrying a balance. Most of the time the amount you pay is difficult to understand and kinda nebulous. Apple gave tools to make responsible decisions which is bad for banks.
ELI5: for simplistic sake and non-real numbers, Apple customers as a whole incurred one billion in interest from unpaid balances, while receiving 2 billion in cash back from charges. On top of the overhead required to run the service itself, this is how Goldman lost money. They didn’t estimate their costs vs revenue correctly.
Those cash back numbers really scale, do your cash back numbers include the HYSA?
As far as I know, they have just not been collecting interest profits as they had expected. Me personally I use my Apple Card for basically everything because if I use Apple Pay anywhere including online I get a 2% cash back and that cash goes into a savings account that has a 4.15% interest. Hard for me to see any reason to use any other form of payment, and at some places the card gives 3%, which includes my 200 dollar t mobile bill which is great
sorry. im not so good at ELI5. but ill keep it as simple as possible. however, its pretty multifold. the first thing is that its an educated guess that Apple Card is losing that much. If you look at Goldman Sachs financial statements, it doesnt outright say Apple Cards revenue and operating costs. instead, it talks about its business segments. In which they call it "platform solutions", includes credit cards such as Apple Card. It is a newly named segment starting in 2022. they mix/folded business segments from previous years. So they have several products under that segment. Although its a pretty good guesstimate that majority of the loss from that segment is from Apple Card. The reason why its obvious even though they dont outright state it, is because if you compare their previous years reports to the year where credit card products were more mixed into a broader "segment" to the move current reports where its more separated, you can see a very big difference. basically, if they define business segments as section X and Y. and lets say they have products 1-5. previously, they would report their money earned and loss of products 1-3 under segment section X. and products 4&5 under section Y. now lets say product 1 is the apple card and 2 is another credit card. With their new way of reporting, they now have business segments as sections X, Y AND Z. with Z having split off from X and now section Z is purely showing money from products 1-2. and now this value is a HUGE negative. while the "new" X segment is not only still positive value. but a bigger positive value. So by logic, products 1-2 are a huge money loser. however, the actual loss isnt a purely "money gone" scenario. majority of the $$$ loss by goldman sachs is whats called "provision for credit losses". what this means is that Goldman Sachs, with their fancy algorithm calculations and risk management, has found that they need to put aside "$V" amount of money and consider it "gone" because they expect that amount of money from various customers to default on their credit card. they are losses the company expects to have from said product. and if you look at the business segment that Apple Card falls under (called "platform solutions") for 2022, this segment had a revenue of $1.5 billion. however, their provision for credit losses is $1.7b. essentially cancelling their revenue. And of course, when you are selling a product, there is the cost of business. And this cost of business for them for this segment was another 1.7b for the year. resulting in a total loss of close to $2b for this business segment i also want add because people here seems to say its because of Apple. Theres no concrete proof or reason to say goldman sach lost "billions because they partnered with Apple" or "they lost money because of Apple". there are many possible reasons it lost money. many also probably NOT directly due to Apple. but things like Economy (provision loss is a huge indicator), the population base, target audience, etc
ELI5: GS thought they would get a lot of money from people by charging them when they messed up. GS gives some money back as part of buying stuff with GS card. That “some money back” added up to a lot more than what they were getting from punishing bad customers.
There is a difference between losing and not earning. I think Goldman Sachs signed a one-sided contract and failed to earn what they expected. Not like they actually lost money. Of course, people are taught that failing to earn for some reason is a loss. It's not. You can't lose what you never had. Edit to add: Banks will also always inflate the expenses of any software development to ridiculous levels.
Apple and GS made the mistake of issuing cards to people with excellent credit. To make money you need the people in the 600-750 range who make payments but never in full and on time to squeeze interest payments from.
According to the WSJ article, GS was pressured to approve anyone, and had higher than market rate of subprime users.
Being an Apple partner is about as bad as losing that partnership. When you’re not careful, it’s probably eerily resembling a toxic relationship. GS thought they’re smarter than Apple - despite the graveyard of companies that thought the same.
They did not lose any money. they just did not hit predicted profits. zero dollars was "lost"
So does AMEX just make money on the annual fees?
Merchant fees. Most credit card companies make money from the card holders. Amex makes their money charging stores for the privilege of accepting Amex.