Goldman Sachs Will Launch Credit Cards

Updated 5/10/18

Goldman Sachs Will Launch Credit Cards, Starting with an Apple Pay Card in Early 2019. The Apple Pay credit card is unlikely to be an interesting travel rewards card, so it's more interesting to watch which credit cards Goldman Sachs launches after the Apple Pay card, which Goldman is taking over from Barclays, which currently issues the Apple Rewards credit card.

The WSJ reported that with the deal, Goldman will gain access to a group of lucrative new customers for its nascent consumer finance arm, Marcus, providing in-store loans to Apple customers. Apple, meanwhile, which has been a Goldman client for years, will earn money from each new cardholder signup, as well as promote its Apple Pay service and potentially double its take of Apple Pay transactions, from the current 0.15% to 0.3%.

Bloomberg reported “Goldman Sachs…[is] on the brink of piling into credit card lending…” and also notes that Goldman acquired the team of credit card startup Final, although that was largely a talent acquisition, per Goldman's Marcus consumer finance head Omer Ismail.

On the Goldman Sachs Q1 2018 Earnings Call, Goldman Sachs CFO Marty Chavez emphasizes that “when we first began the planning process that led to the launch of our Marcus business, we looked at well over a hundred opportunities in consumer finance…”

Chavez notes that the consumer finance opportunities that Goldman's Marcus consumer finance arm are evaluating must meet these criteria for Marcus to build them out as new businesses:

• Substantial pain point for clients
• Ability to leverage Goldman's core strengths, whether in engineering or risk management processes
• Highly profitable, ability to generate meaningful results without a large market share

Chavez concludes “the set [of opportunities] is quite large. So we are evaluating credit cards as you’ve heard us say.”

Perhaps the most compelling evidence of Goldman Sachs planning to become a player in credit cards, until the recent announcement of the Goldman Sachs Apple Pay card, was the hiring of Scott Young, who previously was the Business Development Head of Citi's Global Cards business, negotiating Citi's Costco and renegotiating Citi's American Airlines AAdvantage cobrand agreements.

Challenges for New and Existing Credit Card Players 

• Charge-offs are higher now than a few years ago: about 3.7% on average, as of end of Q1 2018, compared to about 2.7% back in 2015
• After an extended economic recovery, there are worries about a market correction and economic downturn sometime within the next few years
• Offerings such as the Chase Sapphire Reserve have raised the bar. It will be more costly to gain traction, at least in the premium credit card market, than in the pre-Chase Sapphire Reserve days.