CardsFTW #65: Goldman Sachs Learns Credit Cards Are Hard

Plus, CFPB Cracks Down on Healthcare Cards, Square Introduces a Business Card and More

Goldman Sachs Exiting the Apple Card?

The Wall Street Journal broke the news that Goldman Sachs seeks to end its partnership with Apple for the Apple Card. By now, you’ve probably seen this story a few dozen times over the past ten days since it broke (apologies! I took July 4th off from writing.) I’ll try to provide something new from my perspective here.

Apple Card
Jona Gold. Also, the chip is really on the wrong side.

As I’ve repeatedly written, building a credit card business is hard. Goldman Sachs (no relation) went hard at it by launching with Apple. The program is massive, unique, and driven by Apple’s custom requirements. Working with a leading brand is always challenging as the negotiation dynamics are out of traditional balance. The Apple card has more rules exceptions than any other product I’ve seen from Mastercard. It has a unique network logo, no issuer statement, and only works on a single brand’s smartphone, among other features that a bank or network would typically find limiting or out of bounds. Would you like to issue a card with a design that is as clean as Apple’s? The answer is probably tough luck.

Co-brand cards are an important extension of a brand. A big risk that brands take in co-brands is in turning applicants down for credit reasons, which sours the relationship. (On the flip side, some high-end consumers get annoyed if their limit is too low.) When the Apple Card launched, reported credit lines varied from $250 to $40,000. That’s a very broad range. Goldman Sachs, to this point, had never managed a consumer credit card product, and reports over the past few years have been common that losses on the portfolio were high.

During the big consumer strategy push, Goldman launched its Marcus brand with savings, loans, ran a test of checking, acquired a personal finance management app, and launched cards for Apple and General Motors.

In the past few months, Goldman has completed a strategy U-turn. The bank has stopped issuing Marcus loans, bidding on new card deals, and is reportedly selling financing arm GreenSky.

If Goldman wants to get out of the consumer business entirely (or at least out of lending, if it keeps Marcus savings accounts), it will need to scrap the co-brand card products. Who will take them, though? Industry chatter assumes that Goldman accepted terms to win Apple and GM that other banks won’t accept. Apple is a big win, but probably also a challenging partner to manage. American Express is rumored to be the acquirer of the portfolio. Following Amex’s loss of Costco to Citi, there is an argument that Amex needs a replacement for this broad brand partnership, but it’s doubtful the underwriting and business terms can remain the same.

In addition, while another bank like Capital One could conceivable migrate the Bank Identification Number (BIN), ledger, etc., for the Apple Card to their systems and stay on Mastercard, American Express would need to reissue all of the cards. (Migrating BINs is terrible; usually, reissues happen regardless, but the Apple Card is titanium and costs $30 per user.)

All this is to say, building a successful and profitable co-brand card business is really hard. (That doesn’t mean we shouldn’t keep trying!)

CFPB Cracks Down on Healthcare Cards

The CFPB announced another in a string of recent activities last week, this one on an inquiry into costly credit cards and loans pushed on patients in healthcare settings. The CFPB is working with Treasury and Health and Human Services on this.

Healthcare financing is a challenging space to do fairly. Sadly, so many consumers need help financing healthcare, even when they have insurance. Many consumers choose (or are pushed) into high-deductible health plans for which they cannot afford the deductible. The Kaiser Family Foundation found that 26% of U.S. adults say that “they or someone in their household had problems paying or an inability to pay medical bills in the past 12 months.”

CardCredit Mastercard
Anita Cure

Against this backdrop, it isn’t surprising that companies develop financing options targeted at this market. The question for the CFPB is: at what cost, and is it predatory? I know several entrepreneurs attempting to reform the market and provide clearer financing charges against the backdrop of traditional companies like CareCredit that has faced allegations of creating confusion and terms that drive penalty payments.

Like any government action, this could take a while to produce results. This may create a strong opening for new methods of financing healthcare. (We know it won’t solve the underlying healthcare cost problem!)

Thank you for reading CardsFTW. This post is public so feel free to share it.

Square Introduces a Business Card

Over the past decade, Square has tremendously expanded its services for small businesses. Most recently, Square announced an invite-only offer for existing Square customers to a Square business Credit Card. The card is issued by Celtic Bank on the American Express network. I am surprised Square did not use its own bank for this product!

Square Credit Card
It’s metal, of course. It’s not actually square, though; more of a rectangle.

The card has a few unique features. The limit is based on sales processed with Square and a reward program that provides discounts off of the merchant processing fees Square merchants already pay. Square also states that the card will not require a hard inquiry on the business owner’s credit (personal or business) and that missed payments will not be reported to the bureaus. The card has no fees but does appear to allow revolving balances (APRs not stated). As usual, it’s a good-looking card!

Me, Elsewhere

This week in Me, Elsewhere, I am quoted in a recent CNET article, “How to Cancel Your Credit Card the Right Way.” I must note this one with some irony, as I dislike canceling cards. I have 24 open cards right now, but I swear I plan to close a couple of them…soon.

CardsFTW

Thanks for reading CardsFTW, a debit and credit newsletter by Matthew Goldman. Matthew is the founder of Totavi, LLC, which provides GSD Product Consulting with real operational value. Visit totavi.com to learn more and engage us.

* Indicates a company with whom Matthew Goldman or Totavi, LLC has a financial relationship.

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