Apple Card and Goldman Sachs are in the subprime lending business

Both companies want to build a wide net for their new consumer products, making lending and tracking payments very easy. To do this, Apple must offer its first credit card to as many of its customers as possible. Goldman needs to open its doors to customers it typically does not serve.

As the new Apple Card begins to roll out, some of its early members have no credit histories or below average credit scores.

“Goldman was willing to take a little risk here. They’re the ones who take the credit risk, they’re the ones who lose out on fees, too,” said Ted Rossman, industry analyst at “All of these things add up to a card that probably isn’t going to make Goldman a lot of money.”

“For them, the motivation runs deeper and deeper in consumer credit,” Rossman said.

Apple published a support article on Wednesday. which highlights how people with low credit scores can still be approved for the Apple card if they meet other criteria.
Goldman Sachs (FADXX), the card issuer, reviews terms including payment history of a customer’s debt, amount of debt, age of credit accounts, amount of loan accounts, usage credit and any history of foreclosures, bankruptcies and debts sent to collectors, according to the article.

This is Goldman’s latest foray into retail after establishing his online brand Marcus in 2016. Marcus provides unsecured personal loans, including to consumers facing credit card debt.

Apple randomly selected some of the hundreds of thousands of people who had signed up to be notified when the Apple Card becomes available. to request the card. Goldman began reviewing their card applications on August 6.

Goldman is serious about becoming a bank for ordinary people. The company has lent $ 4.75 billion in personal loans via Marcus and 13% of those loans went to clients with FICO scores below 660, which roughly meets the definition of a subprime borrower. The company has signaled great ambitions for Marcus, especially as it has sought to offset declining revenues from its business arm.

Still, some analysts believe the Apple Card may not be such a big risk for Goldman.

The card has no signup bonus or fees in addition to variable interest charged when a balance is not paid. It charges an interest rate of 12.99% to 23.99%, which is lower than industry averages, and offers 3% cash back on Apple products, 2% on all Apple Pay purchases. and 1% on all other purchases.

Nomura analysts predicted in a new report Wednesday that it would take four years for Goldman Sachs to break even for an Apple Card customer, assuming it took $ 350 to acquire the customer and that person spent. $ 5,000 per year at 18.5% APR. Analysts wrote that Apple’s desire “to approve as many iPhone customers as possible effectively puts [Goldman Sachs] in a position of having to approve applications from people with below average credit scores. “

Ben Rasmussen, 28, of Elk, Wash., Who works at a restaurant and pet store, told CNN Business he was approved for the Apple card despite having a low credit score of 524 and an estimated income of $ 15,500 per year. Goldman approved it for a $ 250 credit limit with an APR of 23.99%.

“[I] was a little nervous applying at first when I got the invitation, ”said Rasmussen. “I told myself that I was not very lucky, especially with the fact of going through a bank like Goldman Sachs.

Rasmussen said he had only had one credit card in the past, which he used to finance a car. He said that in the past he missed three months on payment for his car and that damaged his credit. But he hopes to rebuild it with his new Apple card.

The new card is unlikely to “harm Goldman’s financial position or even his public image,” said Lawrence J. White, professor of economics at the Stern School of Business at New York University. “There would have to be a lot of debt defaults before this becomes a big deal for Goldman and it doesn’t look like that’s where they’re going.”

White said Goldman was looking to determine who, among those with poor or no credit history, “appear to be good risks.”

Another new owner of the Apple Card, Jordan Osterberg, 18, is a student and part-time software engineer at a local church in California. He told CNN Business he was “quite surprised” when he was accepted. Goldman approved it for a $ 250 credit limit with an APR of 12.99%. Osterberg said he did not yet have a credit score and that the Apple credit card was his first, despite doing business with a credit union.

“I’ve known for a while that I need to build up credit, and with Apple’s launch of a credit card, it seemed like a perfect opportunity to throw that ball,” Osterberg said.

Chris Isidore of CNN Business contributed to this report.

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