Goldman's Apple Card Business Has a Surprising Subprime Problem

Goldman's credit card business, anchored by the Apple Card since 2019, has arguably been the company's biggest success yet in terms of gaining retail lending scale. It's the largest contributor to the division's 14 million customers and $16 billion in loan balances, a figure that Goldman said would nearly double to $30 billion by 2024. But rising losses threaten to mar that picture. CNBC: Lenders deem bad loans "charge-offs" after a customer misses payments for six months; Goldman's 2.93% net charge-off rate is double the 1.47% rate at JPMorgan's card business and higher than Bank of America's 1.60%, despite being a fraction of those issuers' size. Goldman's losses are also higher than that of Capital One, the largest subprime player among big banks, which had a 2.26% charge-off rate. "If there's one thing Goldman is supposed to be good at, its risk management," said Jason Mikula, a former Goldman employee who now consults for the industry. "So how do they have charge-off rates comparable to a subprime portfolio?" The biggest reason is because Goldman's customers have been with the bank for less than two years on average, according to people with knowledge of the business who weren't authorized to speak to the press. Charge-off rates tend to be highest during the first few years a user has a card; as Goldman's pool of customers ages and struggling users drop out, those losses should calm down, the people said. The bank leans on third-party data providers to compare metrics with similar cards of the same vintage and is comfortable with its performance, the people said. Other banks also tend to be more aggressive in seeking to recover debt, which improves competitors' net charge-off figures, the people said. But another factor is that Goldman's biggest credit product, the Apple Card, is aimed at a broad swath of the country, including those with lower credit scores. Early in its rollout, some users were stunned to learn they had been approved for the card despite checkered credit histories. "Goldman has to play in a broader credit spectrum than other banks, that's part of the issue," said a person who once worked at the New York-based bank, who asked for anonymity to speak candidly about his former employer. "They have no direct-to-consumer offering yet, and when you have the Apple Card and the GM card, you are looking at Americana."

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