Apple Inc. is reportedly in advanced discussions with JPMorgan Chase & Co. to assume control of its co-branded credit card program, currently managed by Goldman Sachs Group Inc. This potential transition of a substantial $20 billion portfolio signifies a strategic re-evaluation by Apple of its financial services partnerships and could reinforce JPMorgan’s position as a dominant force in the U.S. credit card market.
- Apple is in advanced negotiations with JPMorgan Chase & Co. to transfer its $20 billion co-branded credit card portfolio.
- The program is currently managed by Goldman Sachs Group Inc., which has faced profitability challenges with the Apple Card.
- A significant hurdle for potential issuers is the portfolio’s high proportion of subprime borrowers (34%) and the absence of late fees.
- Visa has reportedly offered Apple $100 million to become the underlying card network, potentially replacing Mastercard.
- This transition would solidify JPMorgan’s market leadership and further integrate Apple’s financial services ecosystem.
The quest for a new issuer has been a protracted process, spanning at least two years. During this period, Apple and Goldman Sachs reportedly explored a range of alternatives, including American Express, Capital One, Synchrony Financial, and various fintech enterprises. Goldman Sachs, which originally embarked on this partnership to expand its consumer banking presence, has consistently encountered profitability challenges with the Apple Card program, with reports indicating difficulties in sustaining the economic viability of the collaboration.
Key Obstacles in Negotiations
A primary impediment in the ongoing negotiations centers on the risk profile inherent in the existing card portfolio. As of March, a substantial 34% of the outstanding balances on the Apple Card were attributed to customers possessing subprime credit scores, defined as below 660. This figure presents a stark contrast to JPMorgan Chase’s typical portfolio exposure, where only approximately 15% of its card balances fall into this higher-risk segment. Moreover, the delinquency rate for Goldman Sachs’ Apple Card balances reached 4% for payments overdue by more than 30 days, a rate that surpasses the broader industry average of 3.05% for all banks, as indicated by Federal Reserve data.
Further complicating negotiations is the Apple Card’s distinctive policy of not levying late fees. While this feature is demonstrably consumer-friendly, it simultaneously eradicates a vital revenue stream for card issuers, consequently diminishing the portfolio’s appeal to prospective partners. Reports suggest that several entities have expressed willingness to assume the portfolio only if a substantial discount on its valuation is applied, intended to compensate for this significant revenue void. Goldman Sachs has already taken proactive measures, reserving $2.45 billion by March to mitigate potential loan losses stemming from the card program.
Concurrently, the foundational card network supporting the Apple Card is also under review for a potential transition. The Wall Street Journal has reported that Visa has extended an offer of a $100 million payment to Apple, with the strategic objective of replacing Mastercard as the network powering the card.
Should JPMorgan Chase successfully finalize this significant acquisition, it would not only solidify its standing as the preeminent credit card issuer in the United States but also furnish Apple with a robust and scalable financial services partner. This strategic alliance is poised to enable Apple to further integrate and broaden its financial ecosystem, effectively leveraging JPMorgan’s extensive customer base and considerable operational scale.
Michael Zhang is a seasoned finance journalist with a background in macroeconomic analysis and stock market reporting. He breaks down economic data into easy-to-understand insights that help you navigate today’s financial landscape.