> Apple wants to save face because "the leads we brought GS have double the default rate of other cards" is a bad look for future partners.
Pretty sure I must be misunderstanding you. Do you really mean to suggest that Apple's reaction to Goldman breaking up with them was to start briefing the press that they dumped Goldman first with the intention of somehow hiding or diluting the poor default performance of the card?
0. Do you mean charge off, or default, or delinquency? I think you mean charge off rate, so I'll address that, but let me know if not - you did say "default rate", which is almost always higher than net charge off (default is whenever a consumer fails to pay on time, net charge off is effectively bad debt hitting 6 months of arrears: after six months it's unlikely to be defrayed without debt recovery action). Anyway, assuming you meant net charge off:
1. Apple cannot possibly avoid disclosing the charge off rate of this program to potential partners during diligence. (Quite the opposite of a cover-up, the commercial agreement between Apple and any new partner will likely attempt to explicitly codify management's representations on this metric, and scope what happens if performance is not as described. Other than aggregate balance information I cannot think of a more important metric for an interested party to understand, nor one more likely to result in the demise of the agreement and fixed penalties for misrepresentation if it is presented deceptively.)
2. More importantly, the information you seem to think Apple is preoccupied with keeping out of the public eye appears to be publicly available in Goldman's SEC filings.[^1]
3. More importantly still, Apple is understood to have made several stipulations of Goldman at the outset of the deal which are likely to contribute to higher than average charge off rates: firstly, Apple and Goldman do not pursue debt recovery as aggressively as other card issuers, which is meaningful given that charge offs, unlike defaults, are judged over 6 months.
Secondly, Apple seems to have encouraged Goldman to "get to a yes" on lending to individuals who otherwise may not have qualified for a credit card. (Low credit scores, high risk demographics.)
These are likely to be points of negotiation with any new partner, but it's trivial to see why Apple card's net charge off rate (2.93%) is in line with subprime cards like Capital One (2.2%) rather than JP Morgan's 1.47% and BoA's 1.6% when you consider that they deliberately accept high risk profiles and deliberately avoid pursuing them as robustly as JP Morgan and co.
(BTW, saying "[Apple card customers] have double the default rate of other cards" seems misleading to me – I can only find one such example, and it requires me to round up to 2x, but I may not have the same data as you? I think this should at most be "some other cards", given that e.g. Discover is significantly higher than Apple at 3.5%…)
4. There's some evidence to suggest that net charge offs spike during the infancy of new lending programs like Apple card, because net charge offs spike when individual consumers get new credit cards (for a lot of reasons), before cohorts mature and a steady state performance is reached. (This is also a consideration in multiple predictive models aiming to forecast net charge-off rates.)
These are the good (to me) reasons that Apple is unlikely to be attempting to spin a yarn to the press to "save face".
Without any inside information, I can also see reasons to believe that Apple did terminate the relationship with Goldman proactively, although it seems to be indisputable that Goldman was attempting to exit the business:
a. It has been widely reported that the risk and ADM logic was so poor at launch that Tim Cook was unable to qualify for a card. This is not great for Apple's image.
b. There were multiple horror stories in the press about various forms of prejudicial evaluations: DHH's partner springs to mind. This is not great for Apple's image, particularly when they were preoccupied with making Apple card accessible to the widest possible range of consumers (i.e. high risk).
c. Goldman screwed up withdrawals so badly that Apple began issuing $100 "gifts" to people's accounts as compensation. This is not great for Apple's image.
d. Goldman's infrastructure is inflexible and Apple negotiated weird consumer-centric benefits (e.g. bills at the start of the month, not on a rolling basis: Goldman's customer support teams reportedly can't cope with this concentration of demand). Apple does not play particularly well with others on matters like this.
e. *Edit:* Totally forgot to add that Goldman's consumer credit division is literally being investigated by the CFPB "and other governmental bodies relating to investigations and/or inquiries concerning GS Bank USA’s credit card account management practices." Cool.
Finally, I'd say that Goldman's inner turmoil and urgent desire to exit its consumer businesses is another reason for Apple to want to get out early: consumer has been an unmitigated disaster for Goldman, racking up billions of losses/write-downs, prompting a very embarrassing strategic retreat and eroding much of shareholders' confidence in David Solomon.
I can't think of many reasons why Apple would want to continue the agreement through 2029, particularly given that Goldman somewhat publicly shopped the sale of the program to American Express.
Goldman Sachs is not very good at consumer banking and does not want to do it. That makes them a lousy partner for Apple's consumer banking proposition, and I suspect this story is exactly what it sounds like: Apple putting Goldman out of their misery.
I mean you listed plenty of reasons the relationship is bad. But those are all pretty good reasons for GS to want to bail! Like "Apple is a PITA demanding all bills come due on a specific day for everyone" does not lead to "Apple wants to terminate the relationship".
As anyone who has dealt with vendor integrations would tell you, when one side has a list of demands about how something should work, you know it's going to be a headache. Though I am still legit confused as to how GS ended up being the partner (beyond the cynical "every other company laughed Apple out of the room", which is not a great sign for Apple either!)
I have no inside info, but like you I know that GS is pulling out of consumer stuff in general. Let's just say that in a relationship where GS was constantly, constantly, constantly leaking complaints to the press, it's not a huge logical jump to think that GS would want to end such a relationship.
This is all just gossip of course. None of this matters, and I have no horse in the race. It's just fun to think about.
> I mean you listed plenty of reasons the relationship is bad.
Perhaps we misunderstand each other. This is what you said:
> Apple wants to save face because "the leads we brought GS have double the default rate of other cards" is a bad look for future partners.
I believe that I demonstrated that this conspiracy theory – which is entirely unsubstantiated, and which seems to have been largely refuted given that the charge off data is public – cannot possibly be the reason.
Do you still believe that Apple is somehow trying to conceal charge off rates, having read my post?
> it's not a huge logical jump to think that GS would want to end such a relationship.
This is a very reasonable point, but it is not the one you made. It's totally fine to not be au fait with the minutiae of consumer credit reporting at Goldman Sachs, but it would help me to calibrate what your contention is if you could address specific points instead of abstracting to generalisations when it appears to me that you are entirely misinformed.
I suspect you're right, and I find it to be so sad that anyone could read a fairly well-structured rebuttal to a throwaway conspiracy theory to be evidence of someone having a vested interest.
You're making a value statement about two different positions. Without having adopted such a value statement, I poked at an outsized response. You would need to say why it's a conspiracy theory, any why it's well-structured.
Pretty sure I must be misunderstanding you. Do you really mean to suggest that Apple's reaction to Goldman breaking up with them was to start briefing the press that they dumped Goldman first with the intention of somehow hiding or diluting the poor default performance of the card?
0. Do you mean charge off, or default, or delinquency? I think you mean charge off rate, so I'll address that, but let me know if not - you did say "default rate", which is almost always higher than net charge off (default is whenever a consumer fails to pay on time, net charge off is effectively bad debt hitting 6 months of arrears: after six months it's unlikely to be defrayed without debt recovery action). Anyway, assuming you meant net charge off:
1. Apple cannot possibly avoid disclosing the charge off rate of this program to potential partners during diligence. (Quite the opposite of a cover-up, the commercial agreement between Apple and any new partner will likely attempt to explicitly codify management's representations on this metric, and scope what happens if performance is not as described. Other than aggregate balance information I cannot think of a more important metric for an interested party to understand, nor one more likely to result in the demise of the agreement and fixed penalties for misrepresentation if it is presented deceptively.)
2. More importantly, the information you seem to think Apple is preoccupied with keeping out of the public eye appears to be publicly available in Goldman's SEC filings.[^1]
3. More importantly still, Apple is understood to have made several stipulations of Goldman at the outset of the deal which are likely to contribute to higher than average charge off rates: firstly, Apple and Goldman do not pursue debt recovery as aggressively as other card issuers, which is meaningful given that charge offs, unlike defaults, are judged over 6 months.
Secondly, Apple seems to have encouraged Goldman to "get to a yes" on lending to individuals who otherwise may not have qualified for a credit card. (Low credit scores, high risk demographics.)
These are likely to be points of negotiation with any new partner, but it's trivial to see why Apple card's net charge off rate (2.93%) is in line with subprime cards like Capital One (2.2%) rather than JP Morgan's 1.47% and BoA's 1.6% when you consider that they deliberately accept high risk profiles and deliberately avoid pursuing them as robustly as JP Morgan and co.
(BTW, saying "[Apple card customers] have double the default rate of other cards" seems misleading to me – I can only find one such example, and it requires me to round up to 2x, but I may not have the same data as you? I think this should at most be "some other cards", given that e.g. Discover is significantly higher than Apple at 3.5%…)
4. There's some evidence to suggest that net charge offs spike during the infancy of new lending programs like Apple card, because net charge offs spike when individual consumers get new credit cards (for a lot of reasons), before cohorts mature and a steady state performance is reached. (This is also a consideration in multiple predictive models aiming to forecast net charge-off rates.)
These are the good (to me) reasons that Apple is unlikely to be attempting to spin a yarn to the press to "save face".
Without any inside information, I can also see reasons to believe that Apple did terminate the relationship with Goldman proactively, although it seems to be indisputable that Goldman was attempting to exit the business:
a. It has been widely reported that the risk and ADM logic was so poor at launch that Tim Cook was unable to qualify for a card. This is not great for Apple's image.
b. There were multiple horror stories in the press about various forms of prejudicial evaluations: DHH's partner springs to mind. This is not great for Apple's image, particularly when they were preoccupied with making Apple card accessible to the widest possible range of consumers (i.e. high risk).
c. Goldman screwed up withdrawals so badly that Apple began issuing $100 "gifts" to people's accounts as compensation. This is not great for Apple's image.
d. Goldman's infrastructure is inflexible and Apple negotiated weird consumer-centric benefits (e.g. bills at the start of the month, not on a rolling basis: Goldman's customer support teams reportedly can't cope with this concentration of demand). Apple does not play particularly well with others on matters like this.
e. *Edit:* Totally forgot to add that Goldman's consumer credit division is literally being investigated by the CFPB "and other governmental bodies relating to investigations and/or inquiries concerning GS Bank USA’s credit card account management practices." Cool.
Finally, I'd say that Goldman's inner turmoil and urgent desire to exit its consumer businesses is another reason for Apple to want to get out early: consumer has been an unmitigated disaster for Goldman, racking up billions of losses/write-downs, prompting a very embarrassing strategic retreat and eroding much of shareholders' confidence in David Solomon.
I can't think of many reasons why Apple would want to continue the agreement through 2029, particularly given that Goldman somewhat publicly shopped the sale of the program to American Express.
Goldman Sachs is not very good at consumer banking and does not want to do it. That makes them a lousy partner for Apple's consumer banking proposition, and I suspect this story is exactly what it sounds like: Apple putting Goldman out of their misery.
[^1]: https://www.sec.gov/Archives/edgar/data/886982/0000886982230... p168, states the net charge off ratio on consumer credit cards to be 2.8%.