When giants enter consumer finance
Apple and Goldman Sachs have both made multi-billion-dollar bets on consumer finance — in one case, together. So far, the larger, less regulated tech company seems to be having more success than the systemically important bank.
Why it matters: Apple Pay was launched in 2014; Marcus, the consumer-facing bank from Goldman Sachs, in 2016. The companies' joint credit card, the Apple Card, came in 2019. But only now are we beginning to get a feel for how the two companies' strategies are faring.
The big picture: Apple and Goldman are established legacy businesses with balance sheets in the hundreds of billions of dollars, but they're also relative newcomers when it comes to consumer finance.
Where it stands: Apple has quietly built a global juggernaut in Apple Pay, its contactless payments technology that has expanded from its early days on American Express, MasterCard and Visa to support 24 different payment networks around the world, including local debit and e-money networks. It's now in 65 countries and has signed up more than 10,000 banks.
- Revenues are not disclosed, but the FT reported at launch that Apple had negotiated a take of 0.15% of every transaction.
- The European Commission has arrived at a "preliminary view" that Apple has abused its smartphone monopoly to restrict competition in mobile payments in order to maximize the market share of Apple Pay.
- Apple Pay is even taking off in the U.S., which has long been a laggard in contactless payments. A recent report estimated that it enables $200 billion of U.S. retail sales per year, with a 48% share of mobile wallet transactions — well ahead of the 17% share held by rival Google Pay.
Meanwhile: Goldman's consumer banking unit, Marcus — which specializes in online savings accounts — is likely to lose well over $1 billion this year. It's facing significant staff turnover, high rates of delinquent loans on its credit cards, and ongoing investigations from both the Consumer Financial Protection Bureau and the Federal Reserve.
- That said, it also has more than $100 billion in deposits and more than $16 billion in outstanding loans, much of which is attributable to the Apple Card.
State of play: The companies' joint project, Apple Card, has worked out very well for Apple, which uses the credit card to help bring its expensive gadgets to as many Americans as possible.
- The product lives up to Apple's standards of being well-designed, good-looking, and carrying very high customer satisfaction ratings.
- For Goldman, the card is a bit more of a mixed bag. In the continued absence of a Marcus checking account, the Apple Card is Goldman's highest-profile consumer offering — and it doesn't even carry the Marcus brand. (In the app, where it is most used, it carries no Goldman branding at all.)
- Apple's newest foray into the consumer-loan space, Apple Pay Later, involves lending directly from its own balance sheet rather than partnering with Goldman — solidifying the impression that Goldman needs Apple more than Apple needs Goldman.
Between the lines: Apple drives a hard bargain.
- Beyond encouraging Goldman to offer the Apple Card to as many people as possible, it also pushed MasterCard to give the card World Elite status, which carries the highest swipe fees.
The bottom line: For all the billions that Goldman has poured into Marcus, it still doesn't look like a major competitive threat in consumer banking.
- Apple, on the other hand, is slowly building finance deep into its iOS operating system. And that is some of the most valuable real estate in the world.