Chaos on West Street: Goldman Sachs and Credit Cards

The product announcements had all the panache of a Silicon Valley Launch, with big screens, big promises, and a business plan promising to change a legacy model. However, the balloon burst when Goldman had to contend with the business risk associated with an overzealous promise to build “a new kind of credit card.” 

I’d bet they were not shaking in their shoes at the Park Avenue headquarters for Chase and Citi. Uptown bankers learned about consumer credit’s thrills (and risks) years ago. However, they were likely saying, “This isn’t Wall Street. Consumer debt and charge-offs are part of the credit card business model. Go in with a lax underwriting strategy, which will haunt you for years.”

Today’s WSJ says: “Goldman Sachs Wants Out of Consumer Lending. Employees Say It Can’t Happen Fast Enough.” There was even an F-bomb quote, which I’ve never seen in the WSJ before! I’ve never seen that in the decades I’ve consumed the Wall Street Journal. In the first paragraph, no less.

Goldman Sachs just unloaded a BNPL lending business, and the WSJ noted, “a steep loss, after buying it just last year. The bank has already sold most of its portfolio of personal loans.” Says the WSJ:

• Some senior executives at Goldman want out of what remains of consumer lending—namely, the Apple credit card and other Apple products, and the General Motors credit card, according to people familiar with the matter.

American Express has been suggested as a potential buyer, but they have been hitting on all cylinders, so the move might not make a lot of sense for the upscale lender. According to Q2 numbers, their U.S. consumer revenue network volume was up a nice 10%, and they already have an excellent position with Millennials and Gen Z, with 31% of billed business coming from that segment. For me, a Baby Boomer, Amex derived 32% from that sector.

And I rarely leave home without my Amex Blue Preferred or Amex Delta Platinum. As to my Apple Card, that’s in the safe.

A new kind of credit card? I’ll stick with my existing ones; thank you.

Overview by Brian Riley, Director of Credit /Co-Head of Payments at Javelin Strategy & Research.