Despite recent setbacks with its credit card, Apple’s financial services ambitions remain intact. The Wall Street Journal reported that Apple is looking to end its credit card partnership with Goldman Sachs within the next 12 to 15 months. While many might see this as a sign of trouble, it’s important to note that it is not indicative of a larger problem.
The partnership between Apple and Goldman Sachs began four years ago and was aimed at expanding both companies’ reach into the financial services industry. However, Goldman Sachs has faced challenges in consumer banking, resulting in the sale of lending platform GreenSky at a loss and significant losses from its venture into consumer lending.
Although Goldman Sachs is retreating from its retail ambitions, Apple’s interest in financial services seems to be only growing. It’s simply a matter of finding the right partner and making necessary adjustments to the existing structure. The current partnership offered attractive features such as zero percent interest loans for 12 to 24 months on Apple product purchases and up to 3% cash back on all purchases. While these features may delight customers, they can prove to be costly for lenders.
Analyst Amit Daryanani believes that the decision to end the partnership is more reflective of Goldman Sachs’ retreat from consumer finance rather than any issues Apple had with the program. If Apple decides to continue the program, finding a new partner shouldn’t be difficult, although the economics may be slightly less favorable compared to the previous partnership.
Some potential partners that have been suggested by industry experts include American Express and Synchrony Financial, both of which have experience in retail. Whether Apple decides to join forces with either of them remains uncertain, but it is evident that Apple’s financial services ambitions are far from over.
Despite the current setback, analysts maintain a positive outlook on Apple shares, with an Outperform rating and a $210 price target. It’s clear that this stumble is not enough to derail Apple’s plans for the future.
Apple’s “Land and Expand” Strategy: A Look into the Future
Apple has always been a force to reckon with in the tech industry. However, as its hardware offerings face challenges in continuously surprising consumers, the company has shifted its focus towards software and services to maintain its stronghold in the market. In fact, experts believe that Apple is too big of a partner to not find somebody else to collaborate with.
One of Apple’s successful ventures in recent years has been its Apple Pay program. In 2016, only 10% of iPhone users activated Apple Pay. However, as of March 2023, a staggering 78% of users have now activated the app. The adoption rate is a testament to the program’s popularity and reliability.
Apple’s efforts in the software and services sector are not in vain. Revenue from services accounted for 22% of Apple’s total revenue for the fiscal year ending Sept. 30. This is particularly significant considering that overall quarterly revenue was down 1% year over year. Although Apple Pay only represents a mere 1% of the company’s total revenue, its growth potential cannot be underestimated. This is especially crucial considering that iPhone users are becoming less inclined to upgrade to the latest models.
Gene Munster, co-founder and managing partner of Deepwater Asset Management, describes Apple’s strategy as “land and expand.” To stay ahead, Apple needs to continue adding valuable features to its hardware, such as the seamless payment option offered by Apple Pay. Simultaneously, it must also strengthen its position in the financial sector, which is currently being disrupted by nonbank tech-oriented players like PayPal, Block, and Affirm.
While the recent news about the Apple card may have raised some eyebrows, it is likely just a minor setback that will soon be forgotten. With its strong focus on software and services, coupled with strategic partnerships, Apple is well-positioned to weather any storm that comes its way.
Leave a Reply