Maria Diaz/

Launched in 2019 as a partnership between Apple and Goldman Sachs, the Apple Card quickly transcended its status as a mere credit card, symbolizing the seamless fusion between technology and personal finance.Withover 6.7 million cardholders in the US and 60% using it as their primary credit card, the Apple Card has significantly reshaped the consumer credit experience. Whether used virtually via Apple Pay or physically with its sleek Titanium card, its versatility has set a new benchmark in the financial industry.

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However, recent developments indicate a major shift in the relationship between Apple and Goldman Sachs. Apple has proposed terminating its banking partnership, including the Apple Card and Apple Card Savings Account, within the next 12-15 months. This decision marks a turning point in what was once seen as a groundbreaking collaboration in financial technology. 

The move is reportedly in line with Goldman Sachs' strategy to scale back its consumer finance ambitions after incurring significant losses from the partnership. Apple, for its part, is working internally on "Project Breakout" to develop its own payment processing technology and infrastructure, aiming for greater financial independence.

The Apple Card's technological edge

Beyond its physical attributes, the Apple Card's integration into the ecosystem has been a game-changer. It boasts a unique user interface on the iPhone, allowing users to effortlessly categorize and track their spending, locate specific purchases, and make payments directly from their devices. 

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Additionally, the card offers attractive financial incentives, including the ability to finance Apple products like iPhones and iPads over 24 months at 0% interest, alongside rewards like up to 3% cashback on purchases.

The Apple Card's standout feature is its security, underpinned by two key innovations:

• The Secure Element (SE):Embedded in every iPhone and Apple Watch, this specialized chip is a fortress for payment information. During transactions with Apple Pay, the SE emulates a payment card using NFC technology. This isolated, highly secure environment ensures the protection of sensitive payment data, critical in an era where digital security is paramount.

• Tokenization Technology:Goldman Sachs has developed a unique tokenization system for the Apple Card. It replaces the traditional credit card number (PAN) with a unique, one-time-use token for each transaction. These tokens look and function like credit card numbers but are devoid of the original PAN, making them useless to criminals and significantly reducing the risk of traditional fraud methods like skimming.

Goldman Sachs's consumer business:Alot to swallow

Goldman Sachs' consumer business, a complex portfolio valued at about$106.7 billion, encompasses several key segments:

• Marcus consumer banking deposits:$100 billion, reflecting a substantial consumer banking base.

• Personal loans:$4.5 billion, showing Goldman's reach in consumer lending.

• Credit card partnerships:Including the lucrative Apple and GM partnerships, this segment is part of the$4.5 billion figure.

• GreenSky: A $2.2 billion merchant lending platform, expanding Goldman's footprint in point-of-sale financing.

The potential acquisition scenarios 

• Complete portfolio acquisition:This scenario would involve a financial giant like Chase or Bank of America acquiring the entire portfolio, leveraging their extensive consumer banking operations.

• Piecemeal acquisition:Various segments of Goldman's business could appeal to different players, such as regional banks, fintech companies, or specialized credit card issuers.

• Tokenization technology: This is a critical aspect, especially for the Apple Card segment.Withstrong digital banking capabilities, potential partners like Chase or Citi may be better equipped to integrate or replicate this technology.

The potential new partners 

• JPMorgan Chase (Chase): With $1.14 trillion in assets, Chase is well-equipped for this acquisition. Its digital infrastructure and experience in tech collaborations are ideal for managing the Apple Card, including its advanced tokenization technology.

• American Express:Despite its$1.03 trillion asset base, American Express's unique payment network presents integration challenges with the Mastercard-based Apple Card. However, its customer service excellence and digital prowess could be beneficial.

• Citi:Holding$563.4 billion in assets, Citi has a strong global presence and a commitment to digital banking innovation, making it a viable candidate for integrating Goldman's diverse assets, including the sophisticated technology of the Apple Card.

• Capital One: With $534.5 billion in assets and a digital-first approach, Capital One could provide innovative management for the Apple Card. However, integrating the entire scope of Goldman's consumer business would be a formidable challenge.

• Bank of America: Its$480.6 billion in assets and significant technological investments position it as a strong contender for managing the Apple Card and integrating Goldman's broader consumer business. However, it would require extensive strategic planning.

• Synchrony Financial:Per the Wall Street Journal, the financial services company has expressed interest in taking over Apple Card. Synchrony, the largest issuer of store credit cards in the US, lends to a broad category of consumers, including those with bad credit. The company vied against Goldman during the inception of the Apple credit card program but lost during the bidding process. I tend to feel that Synchrony is a wildcard compared with the giants above, as implementing the technology that Apple Card needs will be a significant challenge.

Customer expectations will remain high

The transition will have significant implications for Apple Card users. Maintaining the card's security, functionality, and user trust is crucial. Apple Card customers are used to excellent tech support and issue resolution, something that I personally have experienced, especially during the worst of COVID-19 pandemic. Whoever takes over the banking relationship must also provide the same great backend for Apple's UX in Wallet and great phone support.

Still, I do not expect there to be many real concerns on the part of Apple's customers. Apple is not the sort of company to leave its customers high and dry or to burden them with a shift that would give them less functionality or alter the product's ease of use for the worse. If anything, I expect the situation to improve, such as making it easier for people to apply and get approved -- an issue that the service has dealt with while under Goldman's stewardship.

It won't be easy for Apple Card's new partner

How would I like this break up to shake out? I'm a Chase credit customer today with Amazon, and I have been banking with them for 30 years. I also own a Citi card as part of doing business with Costco. I'd like not to have to add another bank to my portfolio. 

American Express will have the most difficulty here because some merchants traditionally don't like taking it due to the company's payment terms. If American Express took on Apple Card, I would expect those merchants would now be encouraged to take it when they did not before, and I would also expect some new benefits (such as access to American Express lounges, etc.) for the hassle of losing a MasterCard.

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Furthermore, navigating the complex regulatory environment in financial services will be vital to this transition, requiring meticulous attention to compliance and operational risk management.

The decision to acquire parts or all of Goldman Sachs' consumer business, including the Apple Card, is a financial investment and a strategic maneuver involving market positioning, technological integration, and regulatory compliance. Whoever ends up becoming Apple's new partner for Apple Card, the transaction will set new benchmarks in the digital banking and consumer finance sectors, impacting the involved institutions and the broader industry landscape.

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