4 ms·

I always thought this was a very odd thing for Apple to get into. Apple Pay Cash seems like it makes sense (at least in the US; it never launched here in the U

I always thought this was a very odd thing for Apple to get into. Apple Pay Cash seems like it makes sense (at least in the US; it never launched here in the UK, but there would be very little point in it anyway), but this and the Apple Card always seemed a little bit gross. Especially because I would presume most of the money is made from people who are less well off.

skhunted 2y ago
I think in the U.S. the most profitable customers of credit cards are the well to do because they buy so much more than poorer people.
- deergomoo 2y ago
  Ah yeah that's fair; I was thinking more interest and penalties but I guess taking a percentage on all transactions almost certainly would work out to be more
  - william45123 2y ago
    My understanding is that goldman sachs, who operates the apple card under the hood, is trying to get out of the deal because they lose money on it. I presume that the type of person who wants an apple card is strongly negatively correlated with the kind of person from whom they could make lots of money via fees from. I would bet my apple card balance that the percentage of apple card customers who religiously pay off their balance every month is much much higher than industry average.
    - stefan_ 2y ago
      Not to interrupt the "Apple buyer are sophisticated high status individuals" talk but Goldman is losing money on the Apple card precisely because they are lending to people that can't make the payments.
      - TheNewsIsHere 2y ago
        There were reports (OTOH from late 2023 or early 2024) that GS not being a consumer-facing credit business created a lot of headaches and need for spending. GS did have some other cards before Apple Card, but they were not generally marketed or widely available to the masses like Apple Card. GS wasn’t well prepared for the extra overhead and customer support, and Apple negotiated a _lot_ of power that GS agreed to give them in areas like underwriting decisions. Apple wanted applications approved and many approvals wouldn’t have met with GS’s typical risk tolerance.
        MBCook 2y ago
        Apple also reportedly wanted GS to approve everyone possible and be looser on their standards, which wouldn’t help keep away the worst customers.
  - lxgr 2y ago
    These days, credit card issuers usually specialize on a specific segment of the population with each product. That's why the availability of each given card offer heavily depends on the prospective customer's credit score, disposable income (hence issuers asking for both yearly income and housing payments) etc. On top tier cards, interest and late fees are not the intended way to make money on the majority of cardholders (although of course banks will still charge them for customers that do carry a balance). On lower tier cards, you'll often see less rewards points or even annual fees without any corresponding benefits (i.e. no lounge access, no rental car insurance etc). For example, American Express has traditionally focused on higher-income cardholders, and their top tier cards are charge cards, which are always due in full at the end of each statement period (i.e. carrying a balance is not an option). They don't even list an APR, as far as I remember (although they've recently started offering an option to carry certain purchases, making that story a bit less clear).
- rcxdude 2y ago
  Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. So credit card companies are probably making more money off their less-well-off users as a group than the more-well-off, though it may still be that individual well-off users are more profitable than other individuals.
  - LordGrey 2y ago
    > Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats. [1] https://www.investopedia.com/terms/d/deadbeat.asp https://www.investopedia.com/terms/d/deadbeat.asp
    - xenospn 2y ago
      In my mind, this implies that the vast majority of customers are not deadbeats - meaning they never pay off their cards in full and always have interest?
      - LordGrey 2y ago
        My understanding is that 25-30% of all credit card customers are deadbeats. I've worked with some fintech companies and that number came up in some discussions. I cannot, however, find a corroborating source.
  - andthenzen 2y ago
    Worth noting that this varies heavily by issuer - I checked out the most recent 10Ks for Amex and Discover (Visa and MC are networks and as such, operate off interchange, not interest, and I tried looking at Chase's 10K but it was too complicated for me to figure out the revenue breakdowns for their consumer card business) * Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals. * Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.
tiffanyh 2y ago
Companies getting into Finance/Lending is common when you sell an expensive consumer good ... - GM created GMAC Financial to help consumers buy GM automobiles, 100-years ago. - Apple created Apple Financing LLC, to help consumer purchase expensive phones & laptops.
- lxgr 2y ago
  Apple Pay Later is distinct from Apple's installment payment options for their own products, which have been around considerably longer, though.
- lotsofpulp 2y ago
  What is Apple Financing LLC? iPhone upgrade program is underwritten by Citizens Bank, and Apple credit card is underwritten by Goldman Sachs. Apple Pay Later might be the only thing Apple underwrote, as far as I can tell.
  - TheNewsIsHere 2y ago
    Apple used to have financing for Mac and iOS device purchases that was distinct from Apple Card. Now at least in the US it seems to be financed via Apple Card.
    - ohples 2y ago
      Yeah but wasn't it though Barclays?
lxgr 2y ago
One potentially relevant point here is that Apple Pay Later was being funded by Apple directly, whereas Apple Card was on Goldman Sachs's balance sheet. Obviously they might have been borrowing the capital from or outsourcing the risk of the former to a third party, or participating in the lending of the latter via some revenue sharing agreement; I have no idea about their particular deal for the Apple Card.

skhunted 2y ago

I think in the U.S. the most profitable customers of credit cards are the well to do because they buy so much more than poorer people.

deergomoo 2y ago
Ah yeah that's fair; I was thinking more interest and penalties but I guess taking a percentage on all transactions almost certainly would work out to be more
- william45123 2y ago
  My understanding is that goldman sachs, who operates the apple card under the hood, is trying to get out of the deal because they lose money on it. I presume that the type of person who wants an apple card is strongly negatively correlated with the kind of person from whom they could make lots of money via fees from. I would bet my apple card balance that the percentage of apple card customers who religiously pay off their balance every month is much much higher than industry average.
  - stefan_ 2y ago
    Not to interrupt the "Apple buyer are sophisticated high status individuals" talk but Goldman is losing money on the Apple card precisely because they are lending to people that can't make the payments.
    - TheNewsIsHere 2y ago
      There were reports (OTOH from late 2023 or early 2024) that GS not being a consumer-facing credit business created a lot of headaches and need for spending. GS did have some other cards before Apple Card, but they were not generally marketed or widely available to the masses like Apple Card. GS wasn’t well prepared for the extra overhead and customer support, and Apple negotiated a _lot_ of power that GS agreed to give them in areas like underwriting decisions. Apple wanted applications approved and many approvals wouldn’t have met with GS’s typical risk tolerance.
      - MBCook 2y ago
        Apple also reportedly wanted GS to approve everyone possible and be looser on their standards, which wouldn’t help keep away the worst customers.
- lxgr 2y ago
  These days, credit card issuers usually specialize on a specific segment of the population with each product. That's why the availability of each given card offer heavily depends on the prospective customer's credit score, disposable income (hence issuers asking for both yearly income and housing payments) etc. On top tier cards, interest and late fees are not the intended way to make money on the majority of cardholders (although of course banks will still charge them for customers that do carry a balance). On lower tier cards, you'll often see less rewards points or even annual fees without any corresponding benefits (i.e. no lounge access, no rental car insurance etc). For example, American Express has traditionally focused on higher-income cardholders, and their top tier cards are charge cards, which are always due in full at the end of each statement period (i.e. carrying a balance is not an option). They don't even list an APR, as far as I remember (although they've recently started offering an option to carry certain purchases, making that story a bit less clear).
rcxdude 2y ago
Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. So credit card companies are probably making more money off their less-well-off users as a group than the more-well-off, though it may still be that individual well-off users are more profitable than other individuals.
- LordGrey 2y ago
  > Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats. [1] https://www.investopedia.com/terms/d/deadbeat.asp https://www.investopedia.com/terms/d/deadbeat.asp
  - xenospn 2y ago
    In my mind, this implies that the vast majority of customers are not deadbeats - meaning they never pay off their cards in full and always have interest?
    - LordGrey 2y ago
      My understanding is that 25-30% of all credit card customers are deadbeats. I've worked with some fintech companies and that number came up in some discussions. I cannot, however, find a corroborating source.
- andthenzen 2y ago
  Worth noting that this varies heavily by issuer - I checked out the most recent 10Ks for Amex and Discover (Visa and MC are networks and as such, operate off interchange, not interest, and I tried looking at Chase's 10K but it was too complicated for me to figure out the revenue breakdowns for their consumer card business) * Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals. * Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.

tiffanyh 2y ago

Companies getting into Finance/Lending is common when you sell an expensive consumer good ... - GM created GMAC Financial to help consumers buy GM automobiles, 100-years ago. - Apple created Apple Financing LLC, to help consumer purchase expensive phones & laptops.

lxgr 2y ago
Apple Pay Later is distinct from Apple's installment payment options for their own products, which have been around considerably longer, though.
lotsofpulp 2y ago
What is Apple Financing LLC? iPhone upgrade program is underwritten by Citizens Bank, and Apple credit card is underwritten by Goldman Sachs. Apple Pay Later might be the only thing Apple underwrote, as far as I can tell.
- TheNewsIsHere 2y ago
  Apple used to have financing for Mac and iOS device purchases that was distinct from Apple Card. Now at least in the US it seems to be financed via Apple Card.
  - ohples 2y ago
    Yeah but wasn't it though Barclays?

lxgr 2y ago

One potentially relevant point here is that Apple Pay Later was being funded by Apple directly, whereas Apple Card was on Goldman Sachs's balance sheet. Obviously they might have been borrowing the capital from or outsourcing the risk of the former to a third party, or participating in the lending of the latter via some revenue sharing agreement; I have no idea about their particular deal for the Apple Card.