David Morris, senior consumer financial services analyst for Packaged Facts — source for market research on the financial services industry — has weighed in on the Goldman Sachs and Apple union, suggesting that the partnership hints at something deeper and more profound than what might be casually gleaned from the breaking news.
Goldman Sachs is reportedly in talks with Apple (NASDAQ:AAPL) to finance iPhone purchases. According to Seeking Alpha, buyers would theoretically borrow from Goldman at a cheaper interest rate than the typical credit card might charge. The bank’s Marcus platform on average charges 12%.
While major credit card issuers would jump at the chance for this contract, Morris and Packaged Facts just don’t see Goldman Sachs building a portfolio of private label or co-branded credit cards, and there’s not much point in it issuing just one card—unless there’s more afoot. With this foray into consumer finance, Goldman is unlikely to pursue a partnership with Apple that results merely in reissuing a credit card hewing to the features and benefits provided by the current Barclaycard Visa with Apple Rewards, Morris says.
One hint to the new card’s significance is that it will carry the Apple Pay brand (and be designed to boost it), as reported by the Wall Street Journal (May 10, 2018), which the current Barclaycard Visa with Apple Rewards doesn’t. Apple Pay branding potentially positions the new card as the payment method of choice within the Apple Pay mobile wallet.
Morris says that, backed by the marketing muscle of Apple as the world’s largest company by market value, the reach of its ecosystem, and the loyalty of many of its customers, the card could indeed make a splash at the deep end of the consumer payment pool, at top-of-digital-wallet—especially if Apple and Goldman can concoct a winning recipe to convince more Apple Pay users to migrate to the new card and to use it consistently—and encourage more iPhone users to migrate to Apple Pay.
As noted in the WSJ article, the partnership could extend to Goldman offering in-store loans to Apple customers buying Apple products. But it could also extend much farther than that. PayPal’s consumer credit option, PayPal Credit, comes to mind. Could consumers, like they do with PayPal Credit, tap an Apple Pay card to finance not only Apple products, but also products and services at retailers choosing to offer an Apple Pay financing option?
These strands, woven together, would indeed justify Goldman Sach’s interest in the endeavor, Morris opines. Goldman would put its Marcus consumer financing arm to work in a substantive way, at a scale that would command its attention.
Plus, per Morris, this alliance would give Apple a much more credible means of driving Apple Pay use, generating higher revenue share per transaction, and exerting more control over the transaction in the bargain— all the while leaving the actual lending to a bank.
Factor in that Apple iPhoners skew affluent and younger. Simmons Research data analyzed by Packaged Facts show that 53% of adult iPhone users have a household income of $100,000 or more, compared with 37% of adult smartphone users overall. By adult age bracket, 37% of iPhoners are under age 35, compared with 30% of smartphone users overall and 28% of adults overall. Morris says these potential Apple Pay customers are therefore better credit bets, as well as strong longer-term prospects for financial services of all stripes.
Morris has authored more than a dozen reports in Packaged Facts extensive catalog of research on the Financial Services Market, all of which are available for purchase on the company’s website.
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