By Elizabeth Dilts
NEWYORK (Reuters) – Goldman Sachs Group Inc’s <GS.N> credit card is expected to appear in Apple Inc <AAPL.O> stores as soon as this week, introducing another major touchpoint with affluent, tech-savvy consumers the Wall Street bank hopes to lure.
Goldman’s foray into retail banking began in 2015 and has accelerated under Chief Executive David Solomon, who took the helm last year. Because Goldman does not have branches, it has been trying to get attention for products offered by its consumer bank, Marcus, through promotions and partnerships.
Called Apple Card, the card will use the MasterCard <MA.N> payment network. While consumers will receive a physical card, Apple and Goldman hope users will store payment information in the iPhone wallet app and make purchases without needing to carry the card.
The Apple alliance will push the brand much further into the mainstream than Goldman’s prior efforts, analysts said. Effectively, the Goldman Sachs-Apple card will become the vehicle for people who want to buy pricey smartphones, computers and other gadgets from one of the world’s most popular consumer brands.
“There is a great deal of buzz,” said Barclays analyst Jason Goldberg, comparing Goldman’s offering to JPMorgan Chase & Co’s popular Sapphire credit card. “We expect solid issuance right out of the box.”
There were 1.4 billion active Apple devices, 900 million of which were iPhones, as of January. The company has been emailing potential customers about the new credit card’s launch, with Apple Chief Executive Tim Cook saying last week that it would soon appear in stores.
On Friday, Goldman Sachs released terms and conditions, including details on interest rates and rewards.
Although there is excitement on Wall Street, analysts have expressed concern about Goldman’s plunge into retail.
For one, the bank has precious little experience dealing with Main Street borrowers. Many economists and analysts believe the United States is overdue for a recession, which makes the timing of Goldman’s card roll-out less than ideal.
Bank executives said last month that they have tamped down efforts to grow consumer loans because of heightened credit risk. As of July, Marcus had a $6 billion (4.95 billion pounds) book of unsecured loans, which mostly stem from consumers who consolidated existing credit-card debt into a cheaper product. Marcus also held more than $50 billion in retail deposits.
As the business has grown, analysts complain that Goldman is not disclosing enough details about the people it is lending to, such as their credit scores or delinquency rates. They also worry that Goldman is spending a lot on something that is unlikely generate meaningful profits for some time.
Over the past few years, Goldman has spent $1.3 billion, before taxes, on new business initiatives, Goldman Chief Financial Officer Stephen Scherr told analysts last month. The initiatives are the Apple card, Marcus’ digital offerings and a transaction banking product.
Those three projects dragged down Goldman’s return-on-equity by 60 basis points in the second quarter, Scherr said. But he predicted they will bolster profits once they are running at full-scale.
Analysts believe Goldman’s credit-card endeavour will be fruitful over the long-run, even if it takes awhile to get off the ground.
A few years from now, the card will only represent 1-2% of Goldman’s earnings, Wells Fargo & Co analyst Mike Mayo predicted. But, he said, the bank has the advantage of starting from scratch, unlike rivals that are dealing with costly branch networks and old technology.
“These are two iconic brands that are partnering to better compete as part of the 21st century digital banking wars,” May told Reuters. “It is part of Goldman’s pivot. Expect big attention.”
(Reporting By Elizabeth Dilts; Additional reporting by Stephen Nellis in San Francisco and Imani Moise in New York; Editing by Lauren Tara LaCapra and Cynthia Osterman)