Jennifer Bailey, vice president of Apple Pay, speaks during an Apple product launch event at the Steve Jobs Theater at Apple Park on March 25, 2019 in Cupertino, California.
Michael Short | Getty Images
The bank, which is in charge of deciding who gets the Apple Card, is accepting some applications from users with less-than-stellar credit scores, according to people with knowledge of the matter. Goldman began to make the card available to some Apple customers this week ahead of a broader rollout later this month.
From the start, Apple wanted its bank partner to create a technology platform that would approve as many of its 100 million-plus U.S. iPhone users as possible, within the bounds of regulations and responsible lending, according to the people. That’s in line with the tech giant’s desire to provide a good user experience for its customers.
For Goldman, a 150-year-old investment bank that counts corporations and the ultrawealthy as its clients, the move heightens the risks it faces launching a card during the latter stages of a decade-long U.S. expansion.
While there is no standard definition for who qualifies as subprime, most fall under a FICO score of 660, and their loans often sour before borrowers with higher credit scores. Ten years ago, big lenders got into trouble when irresponsible loans made to subprime mortgage borrowers defaulted, helping create the worst excesses of the financial crisis.
“Apple is only making one card, so they have to target everyone,” said Ian Kar, author of the Fintech Today newsletter. “It’s not like they’re Chase with multiple cards like Sapphire Reserve to target a higher demographic and other cards for lower segments.”
Steve Jobs’ card idea
Apple’s desire to reach as many of its customers as possible with a credit product isn’t new. When Apple held discussions with Capital One about creating a joint card in the late 1990s, Apple co-founder Steve Jobs “had an aversion” to rejecting any of his customers for the card, according to a former executive of the bank. They tested a card, but didn’t roll it out broadly, this person said.
And for Goldman, edging into subprime isn’t an unprecedented step: 13% of the $4.75 billion in personal loans at the bank’s Marcus business went to borrowers with FICO scores below 660.
The approval process, done through the iPhone wallet app, was designed to give most applicants a decision within two minutes, said the people. In that time, the bank’s systems confirm users’ identity and that their credit bureau records indicate they can repay their debts, the people said.
Goldman is using software firm Provenir to facilitate credit decisions, said another person with knowledge of the situation.
Under pressure to show Wall Street that it can grow revenue amid an industry-wide slump in trading revenue, the bank has been methodically building out its consumer business, starting with high-yielding deposits and unsecured personal loans in 2016.
Goldman won’t provide more credit to a person than their profile suggests they can handle, according to a person with knowledge of the firm’s plans. The card was designed to encourage responsible use, this person added.
In a recent presentation, Chief Financial Officer Stephen Scherr indicated that the bank was aware of the risks involved in starting up a huge consumer lending business. He told analysts in May that the bank would “apply the same rigorous risk management focus” for the Apple Card as it does for its Marcus personal loan division.
Still, because of its mandate for a broad customer base, Goldman is likely to approve users who would have difficulty getting other popular rewards cards, like J.P. Morgan‘s Sapphire Reserve or Citigroup‘s double-cash back card.
One new Apple Card customer, Ed Oswald, said his FICO score is about 620. The Reading, Pennsylvania-based copywriter said he had been using a subprime card from Merrick Bank.
“I was absolutely shocked I got it,” Oswald said. “I have a lot of collections from two or three years ago when I was in a really rough spot. When I heard it was with Goldman Sachs, I figured they were going for the high-income set.”
Oswald said Goldman is giving him a relatively modest credit limit of $750. He said his interest rate on the Apple Card, at 23.99%, is “a lot lower” than his other cards.