In the midst of Goldman Sachs’ reevaluation of its consumer banking ventures—which have faced substantial criticism under the leadership of CEO David Solomon—the company is in discussions to transfer its Apple credit card and high-yield savings account products to American Express, according to CNBC.
If the move happens, it would signify a sudden and unexpected reversal for both Goldman Sachs and Apple. In fact, in October, the WSJ reported that the two companies had renewed their partnership, extending it through 2029.
Entry into Consumer Banking
Goldman Sachs’ foray into the consumer market represented a break with its past for several reasons. Goldman had long been known as a leading investment bank and financial services firm catering primarily to institutional clients and high-net-worth individuals. The firm’s core business revolved around investment banking, securities trading, and wealth management. By venturing into the consumer market, the company departed from its traditional business model and entered unfamiliar territory. Consumer banking requires a different set of capabilities, infrastructure, and risk management compared to its established institutional-focused operations. This move represented a strategic shift for the firm, as it aimed to diversify its revenue streams, tap into a broader customer base, and establish a foothold in the growing digital banking sector.
Additionally, Goldman’s entry into the consumer market signaled a departure from its and brand identity. The firm had cultivated an image of exclusivity and sophistication, catering to elite clients and maintaining a certain mystique in the financial industry. The move into consumer banking necessitated a more mainstream approach, engaging with a wider range of customers and offering retail-oriented products and services. This shift challenged the perception of Goldman Sachs as an exclusive institution, potentially diluting its brand.
Key Takeaways from a Possible Exit
Goldman Sachs’ rumored decision to exit its partnership with Apple would not only sever ties with the tech giant, but also signify the end of the firm’s ambitious plans to transform into a comprehensive consumer bank. Goldman Sachs introduced its Marcus high-yield savings account in 2016, expanded its consumer offerings by entering the credit card market through its high-profile partnership with Apple, and bought a fintech lending company named GreenSky.
While the company has had ambition plans, its CEO has faced internal criticism for presiding over the costly consumer-focused expansion, with Goldman Sachs revealing a loss of roughly $3 billion since 2020 due to its consumer lending push. The potential exit from the credit card business and the sale of GreenSky would leave Goldman Sachs with only its original product, the Marcus savings account, in its consumer business portfolio.
According to Brian Riley, Co-Head of Payments at Javelin Strategy & Research, there are three main lessons from Goldman Sachs’ foray into consumer finance.
“First, if you are going to get into retail credit, you must manage the lending risk factors,” Riley said. “Even though someone owns a $1,200 iPhone, that does not necessarily mean they qualify for credit. Second, when you make claims on re-inventing the credit card, be cautious—it takes more than a daily rewards payout and a flashy titanium card. Finally, if you want to start a credit card business from scratch, start off small, so you can understand the nuances of risk management and consumer credit. Ramping up as fast as Goldman Sachs did was key to the product’s failure.”
While no sudden moves have been made so far, it’s still early days to see what may come of a potential Goldman Sachs and American Express partnership.
“There will be some interesting conversion issues, including if Amex will age out the cards which are now issued under the Mastercard brand, or would they convert quickly to Amex? And what will Amex do with the daily rewards payout, will they keep the costly titanium cards?” Riley said.
As the fate of Goldman Sachs’ partnership with Apple hangs in the balance, the potential implications reach beyond the immediate deal. It serves as a cautionary tale for financial institutions seeking to expand into the consumer market and highlights the challenges they may encounter along the way.
“If the Amex deal goes through, this will be the third cobrand partner in less than ten years,” Riley said. “Apple might need to learn a little about partnership management.”
