Steve Jobs vision of Apple backed financing for all seems to have attained fruition with the Apple Card. The Apple Card has created quite a hype especially since it is being approved for people with low FICO score and offers high cashback on Apple products. The Cupertino company has tied up with financial giant Goldman Sachs.
Report from CNBC casts a net of suspicion over the profitability of Apple Card. The report mentions that Apple Card will be more exposed to losses as it creates lesser revenue than its competitors. A quick refresh, Apple Card offers the lowest interest rate and doesn’t levy fines for late payment.
A panel of Nomura analysts led by Bill Carache says that “The Apple Card portfolio may generate lower revenues and face higher loss content relative to the industry average.” He found out that Goldman spends $350 to acquire new user and it will take at least four years for the bank to break even. As reported earlier, Goldman Sachs has spent nearly $1.3 billion in its consumer savings which includes Apple Card.
The U.S economy seems to be in a brink of recession and this might further dampen the prospects of profitability on Apple Card for Goldman Sachs. Furthermore, Goldman is approving the Apple Card for applicants with credit scores as low as 500. Dipping into subprime lending with a low rate of interest might not be a bright idea after all.
The Apple Card will begin to lose money once losses start reaching 8%, similar to the subprime mortgage crisis in 2008. Its also worth noting that unlike other financial institutions, Goldman Sachs is new to consumer offering, this means that they don’t have historical data. In other words, the chances of net charge off’s rising above 8% are very high. It is also worth noting that earlier on Citigroup backed out of the Apple Card program. Did you apply for Apple Card? If, not our Apple Card guide will help you out.