What the new Apple credit card means for Goldman Sachs

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It’s not often that Goldman Sachs gets second billing. But amid all the glitz that accompanied the unveiling of Apple’s new credit card on Monday, the Wall Street bank's role was somewhat overshadowed.

Goldman will be the issuer of the Apple Card, which is expected to launch this summer, marking the bank’s first foray into the credit card business.

In an indication of the deal’s importance to Goldman, CEO David Solomon was in attendance Monday at the Steve Jobs Theater in Cupertino, Calif. “This partnership is a major step in the growth of our consumer franchise,” Solomon said in an email to the bank’s employees.

Goldman has been offering personal loans, which customers often use to refinance credit card debt, since 2016. The firm also offers deposit accounts through Marcus, its digital consumer bank. And last year the New York bank acquired Clarity Money, the maker of an app that helps consumers maintain control of their finances.

The Apple deal represents an extension of — but also a departure from — the consumer strategy that Goldman has been pursuing for the past few years.

As a newcomer to consumer financial services, Goldman Sachs does not rely on legacy technology like other large consumer banks do, and company officials believe that Marcus’ modern architecture represents a key advantage. Apple Vice President Jennifer Bailey indicated Monday that the tech giant chose Goldman for that reason, saying that the venerable bank was in a position to take bold and innovative steps forward.

In one example of the Apple Card’s forward-leaning technology, consumers will be able to apply for the card from their iPhones, get approved in minutes, and make purchases immediately. Traditionally, new credit card customers have had to wait a few days until a plastic card arrives in the mail before they can spend.

The Apple Card will also offer digital tools that consumers can use to avoid financial pitfalls, an approach that mirrors steps Goldman has taken with its Marcus platform. “We’re excited to partner with Apple on this card, which is designed to be truly on the side of the consumer,” Solomon said in his email.

But in other ways the Apple partnership represents a course adjustment for Goldman. Back in 2016, a Goldman executive told one reporter that the company did not have the ambition to get into the credit card business. Since Marcus launched, Goldman has seen plastic as the competition, arguing that personal loans are a better solution for many consumers who manage debt payments on high-interest rate cards.

The Apple deal also represents a shift for Goldman since until now the bank has been focusing entirely on building its own consumer brand and its own consumer platform.

Goldman appears poised to play a more behind-the-scenes role with the Apple Card — which is perhaps not a surprise, given how zealously Apple guards its own brand, and given the iPhone maker’s own interest in becoming a financial hub for its loyal customers.

Apple is exerting control over the product’s branding and its user interface, payments analyst Richard Crone said in an email Monday. “Goldman Sachs is along for the ride,” he wrote.

Financial terms of the deal were not disclosed. But the partnership figures to put Goldman in the business of evaluating risk on revolving consumer credit for the first time.

Brian Riley, an analyst at Mercator Advisory Group, predicted that Goldman will be looking to hire credit card industry veterans from the likes of JPMorgan Chase and Citigroup.

“They’re up against some major-league strength,” he said in reference to competition that Apple and Goldman Sachs face from the card industry’s entrenched incumbents.

Goldman and Apple are betting that one way they can lure consumers away from the cards they are accustomed to pulling out of their wallets is by placing a greater emphasis on privacy. To that end, Goldman will never share or sell data to third parties for marketing and advertising, Apple said.

The Apple Card will also include numerous security features that are considered cutting-edge. For example, the physical version of the card, which will be made out of titanium, will not list a card number, a security code or an expiration date. Customers will have to log in to Apple Pay to get that information.

Those precautions figure to eliminate fraud involving retail employees who take photos of customers’ credit cards and then use the information listed to make online purchases.

But Goldman and Apple are also balancing fraud prevention with efforts to ensure that consumers can use the new credit card in as many locations as possible. One source familiar with the product said that it will include a magnetic stripe, an old technology that can be exploited by fraudsters.

Having the magnetic stripe will allow customers to use their Apple Cards in stores that have yet to adopt computer chip technology.

Even so, the security features announced Monday should reduce fraud, said Brent Bowen, a senior vice president at the credit card manufacturer Valid. “It is a big step forward,” he said.

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Credit cards Digital payments Fraud prevention Data privacy David Solomon Tim Cook Goldman Sachs Apple
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