When you think of swift, suave operations and serious brain power, both Apple and Goldman Sachs certainly come to mind.
They’re vastly different businesses, but certainly among the best, if not “the best” in their fields. They’re also pretty profitable. All of which makes news that Apple and Goldman appear to have gotten it wrong, with lending on their Apple Credit Card, all the more surprising.
Yep, the two titans of their respective fields are currently leading the credit card arena in an unfortunate statistic: the highest debt defaults. Currently, the figure sits at 2.93%, juxtaposed by a time with other banks like Bank of America reporting their lowest ever defaults. What went wrong?
As if the card being accused of sexism at launch by Apple co-founder Steve Wozniak wasn’t bad enough!
Fascinating World Of Card Approval Scores
According to filings from Goldman Sachs, circa one-quarter of all Apple card approvals went to “sub-prime” applicants, with credit scores below 660. GSTP wasn’t that moved with the card at launch, despite a few innovative features.
It looks like Apple and Goldman Sachs took a small gamble to help launch the product into market and get as many people switched on as possible, but it’s not quite paying off as hoped. Many of those sub-prime card approvals are leaving Apple and Goldman holding the bag.
It’s not at all uncommon for credit card issuers to loosen approval criteria at the launch of a card product, such as the Apple Card, but robust data and profiling from decades of lending often helps credit card issuers spot the major risks.
People often find fascinating patterns with Amex, Citi, Chase, Capital One and others, and they’re typically formed over many years. Each card issuer looks for something a bit different in an applicant. For years, people with even great credit struggled to snag Capital One Cards, but that appears to be changing.
As a new product and issuer setup, it appears Goldman and Apple could’ve used some of that historical data and expertise. In the aftermath of the 2008 financial crisis, many card issuers moved to more stringent approvals processes to avoid risky lending, and scores over 700 became the norm. Apparently, not here.
The topic of the above average defaults is making headlines as the world descends into a long winter, with much uncertainty ahead. Stress tests and signs of debt trouble are popping up, and sub-prime appears to be the first ripple of the wave.
Will Credit Card Applications Get Tighter?
Somewhat surprisingly to some, some of the largest ever credit card bonuses and approvals numbers came during the last few years. Despite many global worries, the general market was full of customers on solid financial footing, with strong balances.
Cards wanted to get their product into people’s wallets ahead of the return of revenge travel and big spending, as the world reopened. Some major new rewards credit cards launched accordingly.
With rates on the rise and these ripples appearing, it’s likely that some cards may become more difficult to be approved for, than say, six months ago. That won’t be the case across the board, but this new data from the Apple Card may give big banks a bit of pause on extending more sub-prime lending.