Apple-Goldman Card Poses Risks, May 'Blow Up'

It would be “odd” for Apple Inc. to offer a jointly developed credit card with Goldman Sachs Group Inc. and not with Synchrony Financial, Moffett Nathanson analyst Lisa Ellis said, since Synchrony dominates the market for co-brand offerings.

“Goldman must be offering Apple a very good deal,” Ellis said by email. She added that the Goldman partnership “makes the card more risky for Apple,” as it would be “Goldman’s first foray into a consumer credit card.” The card “could blow up on them, particularly if we head into a macroeconomic slowdown.”

Ellis also said that “there’s nothing about what Apple is launching that makes it look like it will be particularly successful.” She noted that there are many co-brand cards, which are typically niche offerings that appeal to a particular segment of consumers, while big co-brands, like the Marriott/Starwood, Costco, and Delta airline cards, carry heavy rewards. She expected this new card may appeal to consumers who are “Apple zealots.”

“While there is clearly opportunity for Apple to play in financials, news, and video, there is also significant competition and much greater room for Apple to mis-execute,” KeyBanc analyst Josh Beck wrote in a note. “This increases risk to the brand that we believe offsets the profit potential based on details we have seen so far,” he said. He didn’t expect “any material change to processing economics,” which pointed to minimal impact for Visa Inc. and Mastercard Inc.

“While this move makes a great deal of sense for Goldman it is unlikely to create any profits for the company for the foreseeable future,” Odeon’s Richard Bove wrote in a note. “Moreover, it could actually create a minor drag on earnings for the next couple of years.”

If Goldman’s Marcus were to eventually gain better access to Apple customers, that might increase the competition for marketplace lender LendingClub Corp., Beck said. Shares of LendingClub, which were battered on Wednesday amid concerns about the company’s results, extended losses on Thursday, falling as much as 5.3 percent.

The Apple-Goldman card, which is set to run on Mastercard Inc.’s network rails, may be “marginally positive” for Mastercard and “neutral-minus” for Visa Inc., Ellis said, as it poses “nothing threatening to Visa’s business model, just a minor co-brand win for Mastercard.”

It may be a “modest negative” for PayPal Holdings Inc., as it’s “another indication that Apple is continuing to invest in payments,” and “neutral-minus” for Square Inc., as Square is pushing into consumer financial health services as part of its Square Cash Wallet. It also may have no impact for acquirers Worldpay Inc., First Data Corp., and Global Payments Inc.

Ellis is keeping an eye on what “financial health” features Apple may roll out in the Apple Wallet as part of the card launch. “If those features are good, and are available across any/all cards stored in the Apple Wallet, not just the Apple co-brand, then it would make the Apple Wallet, in conjunction with Apple Pay, potentially more threatening to PayPal.”

“The overall ongoing trend is that the wallets” — PayPal, Apple Wallet, and Amazon Pay — “continue to look for ways to provide ‘bank-lite’ services to get consumers to spend more time in their wallets, and less in their banking apps,” Ellis said.

Apple shares fell about 0.3% in Thursday mid-day trading, while Goldman’s were down as much as 1.4%, as the broader market edged lower. Visa and Mastercard were both down as much as 1.1%, while PayPal rose 0.8% and Square fell about 2.3%.

In May, it was reported that Goldman was said to be issuing Apple’s new co-brand credit card, according to a person familiar with the matter, as the investment bank deepened its push into consumer finance.

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