Bankers and credit union executives were aghast when the story broke that Amazon was in talks with several banks to offer an Amazon checking account. It has yet to happen, but the possibility remains. And like a giant shadow looming on the wall, such notions still sends shivers down the spines of many in the industry.
As if those lingering fears weren’t enough, now comes a partnership between two mega-corporations. Apple has partnered with Goldman Sachs to issue an Apple credit card that will be incorporated into the iPhone. The official launch date for the credit card has not been set yet, but it is the first step of what is reported to be a broader agreement to offer additional financial products down the road.
Because the deal involves a credit card and not a checking account, this pairing hasn’t sent massive shockwaves through the industry as the Amazon rumor did. Nevertheless, this one is actually set to happen. To be sure, no one The Financial Brand contacted ranked the impact of an Apple+Goldman partnership higher than what an Amazon checking account would have.
But several industry observers suggest that executives in the financial industry may be underestimating the power of what Apple and Goldman can bring to bear on the banking industry. Most significantly, the arrangement hints at a future with more such alliances that could threaten traditional financial institutions.
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The Significance of Apple+Goldman?
Some reviewers suggested this partnership was “no big deal” — perhaps nothing more than a play to boost the underwhelming performance of the Apple Pay mobile wallet.
Ali Raza, managing principal of payments advisory and consulting firm Blue Leviathan, has a different point of view. As he wrote in PayThink, the Apple+Goldman partnership is “less about mobile payments and Apple Pay, and more about consumer credit and lending.”
Under the Marcus brand, Goldman Sachs Bank has been highly successful as an online originator of consumer loans and has built its deposit base to $35 billion since 2016. All those Marcus high-rate savings deposits have to be put to work somewhere. Not coincidentally, credit cards are one of the most profitable banking products. Other recent Goldman acquisitions — including personal finance management app Clarity Money and online credit card startup Final — make a good fit with the new card deal.
“Whether this partnership turns out to be wildly successful or not, it’s redefining what it means to be a bank.”
— Joe Sullivan, Market Insights
“Every time something like this happens, it continues to change the perception that consumers have about what a bank is,” observes Joe Sullivan, CEO at Market Insights. “Whether this partnership turns out to be wildly successful or not,” he says, “it’s redefining what it means to be a bank. And that has long-term implications for the industry.”
More immediately, however, Sullivan says the arrangement gives Goldman Sachs Bank another critical beachhead in retail banking.
Goldman offers wealth management and, more recently, moved into personal loans, Sullivan states, “but a credit card represents the beginning of a more traditional banking relationship. With that in place now, it will not be long before a retail checking product might come into the picture,” he predicts.
As an article at Business Insider points out, the Goldman partnership could drive millions more to Apple’s digital wallet if successful. “It could be the beginning of something much more interesting — the forging of some of the closest ties yet between Wall Street and Silicon Valley,” the article noted.
Nick Hassebrock, Senior Research Analyst at Mintel Comperemedia says the move highlights the fact that big tech brands would prefer linking up with a financial partner than developing financial products on their own — a classic “make vs. buy” scenario. But it works the other way too. Mintel is quick to point out that the trust consumers put in Apple and large financial institutions has “the potential to pay off more than if one or more of the partners were a start-up.” (Fintechs, are you listening?)
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Candidates For The Next Tech+Bank Hookup
Will the Apple+Goldman partnership unleash a wave of similar moves? Possibly yes. While no one believes an Amazon+bank partnership for checking accounts is imminent, there are other possibilities.
“Besides Amazon, Google could be a partner option as it continues to support Google Pay and has a deep focus on making Google Assistant a standout product to help users in every piece of their life,” says Hassebrock from Mintel. “This could translate to financial help as well.”
The analyst says he could also see Facebook joining the crowd, as it has already added financial products to Messenger and WhatsApp.
Sullivan predicts more of these tech+banking partnerships, which, he says, are about reach and combining customer bases. While he doesn’t discount other BigTech partnerships, he believes telecomm companies are ripe for further bank deals. Just look at T-Mobile, he says. It has 76 million customers and is partnering with Bank Mobile to offer the T-Mobile Money banking account.
“That’s where I think we’re headed,” says Sullivan. He points to AT&T and Verizon, both with tens of millions of customers, as the next likely banking partners. “Adding a layer of banking services to an existing and well-known affinity program or brand is where the leverage will be.” And as BankMobile, an offshoot of Customer Bank, shows, partnerships don’t have to only be with giant banking institutions.
Whether the next deal is Verizon or someone else, the point of the partnership is not just market share, but share of mind, Sullivan maintains. “We all receive about 10,000 brand messages a day,” he says, which is tough to break through. “New partnerships like Apple and Goldman Sachs create attention and help deepen consumers’ awareness of what the companies offer.”
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Ho-Hum Card Offer? Or Something More?
Several commentators note that the features of the forthcoming Apple credit card are pretty average, as far as they are known. What’s been reported is 2% cash back on most purchases, unspecified higher rewards on Apple products, and integration in the Apple Wallet. Money management tools to track spending, rewards, and send notifications are said to be under development. The card will run on the Mastercard platform.
As Ron Shevlin, managing director of fintech research at Cornerstone Advisors, observes in a Forbes post, “There are a ton of 2% cash back cards already on the market, and a slew that do a whole lot better than that.” He doesn’t believe the new card has much of a chance unless Goldman Sachs “brings enough marketing heft and analytics capabilities to the table.”
Motley Fool personal finance writer Matthew Frankel notes, however, that the right combination of Apple card features could be attractive for buying high-priced Apple products. A 3% reward rate wouldn’t do it, but a 5% rewards rate combined with 0% interest for 12 months “could be an interesting proposition,” he says in a post.
“Apple is not issuing a credit card. They’re releasing a financial tool.”
— Nick Hassebrock, Mintel Comperemedia
What Mintel’s Nick Hassebrock finds significant about the Apple-Goldman Sachs card partnership is that Apple appears to be the lead manager on the product, and so is getting a custom-built product in regard to user interface and details. “Apple is not issuing a credit card,” he states. “They’re releasing a financial tool. They know that trying to compete purely on benefits, especially within a service category where everything is generally the same, is not the way to go.”
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Apple Has Wasted Opportunities Before
The money management tools said to be in the works draw mixed views as to their efficacy. Shevlin maintains that such features are not a draw. Joe Sullivan believes providing them is a good message to send, but not a differentiator. These features are simply expected now, he says, especially by Millennial and younger consumers.
Mintel’s analysts, on the other hand, see more upside. Given the popularity of Apple Watch, the Apple Health app, and wider consumer interest in easily monitoring their health, a research note states, “it is likely that we will see financial health become a more involved part of holistic wellness with its ties to stress and quality of living.”
A fintech influencer and self-professed “Apple fan-boy,” Bradley Leimer, Co-Founder of Unconventional Ventures, is nonetheless skeptical that the computer company will successfully tap this financial wellness potential. In his view, the partnership with Goldman Sachs simply shows that “Apple isn’t satisfied with Apple Pay traction and wants to create additional value for higher net worth clients.
“The question,” Leimer continues, “is whether Apple will understand the broader opportunity they have to make an impression on the daily lives of their customers — to help them better understand their finances similar to how they are focused on improving our health through fitness tracking and health monitoring.”
“Partnering with Goldman Sachs only reinforces that Apple is out of touch with everyday Americans and their financial lives.”
— Bradley Leimer, Unconventional Ventures
Based on the company’s failures — in Leimer’s opinion — to exploit its advantages in voice, payments, and even music, the analyst doesn’t think it will happen in finance either. “Partnering with Goldman Sachs only reinforces that Apple is out of touch with everyday Americans and their financial lives,” he states.
Sullivan, on the other hand, believes the partnership will positively impact Apple Pay. “Apple Pay has been kind of an interface that connected with my American Express or other card, where now the credit is going to be right inside my mobile wallet. It does get Apple more into the banking business.”
Ultimately the “card” in question may not even end up being physical. Says Mintel’s Hassebrock, “a virtual-only credit card would be a game-changer, and it would not be out of character for Apple to completely disrupt the norm in this way. Consumers may ‘think’ they need a physical card, in the same way iPhone X users still miss our headphone jacks or home button, but over time we will grow to embrace — or at least accept — the change.”