Citigroup was reportedly in advanced talks with Apple to partner on its new credit card but decided not to move forward, according to CNBC.
Citing people with knowledge of the talks, CNBC reported that Citigroup bailed over concerns that it wouldn’t earn enough of a profit from the partnership. The report noted that JPMorgan Chase, Barclays and Synchrony were also in the running to partner with Apple on the credit card. Apple went with Goldman Sachs, announcing in March the new credit card that will be available in the summer.
While the credit card is expected to appeal to consumers thanks to zero in the way of fees, a mobile app that encourages consumers to avoid debt and to pay it off promptly and what Apple said will be lower interest rates than are available today, the bank partner isn’t expected to make much. For Goldman Sachs, the report said, it will be a test to see if the endeavor is profitable at a time when the economic growth in the U.S. is in the late innings.
“There’s a danger for any bank entering deals like this from a profitability standpoint,” Forrester analyst Peter Wannemacher said in the report. “Increasingly, they’re wary of co-branding deals when it seems likely that the partner firm is the ‘cooler’ brand. They’ll consider making a deal with a company like Apple or Uber, but the danger is that the economic gains underwhelm.”
The move on the part of Citigroup to back out of partnering with Apple underscores the fact that U.S. credit card issuers make money when customers rack up debt and remain in debt. According to CNBC, U.S. consumers paid $113 billion in credit card interest last year. That’s up nearly 50 percent from five years ago. If more consumers embrace the FinTech’s promises of no fees and lower interest rates the credit card industry stands to lose. Andrew Williams, a spokesman for Goldman Sachs, told the news outlet the bank is thrilled to be a partner with Apple.
“Goldman Sachs seeks to disrupt consumer finance by putting the customer first,” Williams said in a statement. “We are excited for customers to use Apple Card, which is designed to help people take control of their financial lives.”