Why Goldman Sachs and Apple Pay Are the Biggest Losers As Credit Card Holders Struggle To Make Payments

Data on delinquency and charge-offs for the month of August have been made public by major credit card issuers, providing a window into Americans' most recent spending patterns.

Some customers have turned to credit cards in an effort to supplement their shrinking budgets as a result of high levels of inflation, which for August was 8.3%, while many are having trouble making payments.

The United States is issuing more credit cards. Americans had 537 million credit card accounts as of the first quarter of this year, an increase of 6% from the prior quarter.

According to New York Fed data, credit card debt decreased from an all-time high of $930 billion in late 2019, but according to MoneyGeek, the average American had $5,769 in credit card debt by the first quarter of 2022, with balances just below pre-pandemic levels.

Subprime users appear to be having difficulties paying off their debt, placing further strain on financial institutions, while consumers with decent and excellent credit scores are making their payments on time.

Of those well-known brands, Goldman Sachs (NYSE: GS) has suffered due to the current predicament, which has led investors to question the firm's risky collaboration with Apple (NASDAQ: AAPL) as the primary card issuer behind Apple Card and the Apple Pay service.

For American Express, Citigroup, Bank Of America, and JPMorgan Chase, there were card delinquencies and write-offs in August.

The majority of major credit card companies reported marginal increases in delinquency for August, which is defined as failing to make card payments by the due date plus one month.

Card delinquency rates increased to 0.8% in August according to American Express (NYSE: AXP), from 0.7% in July and 0.6% a year earlier.

Net write-offs increased from 0.6% yearly but stayed stable at 0.8%, matching July and June rates.

When they believe there is no likelihood they will be able to recover the debt from the debtor, usually after six months of not receiving payment, credit card issuers frequently write off particular debt as a loss. Charge-offs are another name for these.

A total of $20.2 billion in loans were made by AMEX in August, an increase of $200 million over July's statistics and $800 million from June.

The delinquency rate for Citigroup (NYSE: C) increased to 0.82% in August from 0.79% in July and 0.80% a year earlier.

Net charge-off increased from 1.19% in July to 1.33%.

The delinquency rate for Bank of America (NYSE: BAC) increased to 0.88% in August from 0.85% in July. But this one dropped from 0.90% in August 2021 year over year.

The delinquency rate of JPMorgan Chase (NYSE: JPM) remained at 0.66% from July and June. The rate increased from 0.62% a year earlier.

At the end of August, its charge-off rate increased to 1.15% from 1.02% in July.

Apple Pay by Goldman Sachs may be rotten fruit.

Goldman Sachs announced earlier this week that the loss rate on credit card loans from write-offs in the second quarter of this year was 2.93%. Among the major credit card companies, that is the worst.

Due to user profiles that are more similar to subprime offers than those of other financial institutions—one-fourth of consumers have FICO scores below 660—Goldman Sachs clients are said to be longer behind on their payments than those of other financial institutions.

For its part, JPMorgan only made loans to borrowers with credit scores below 660 in 12% of its cases.

Scores between 661 and 780 are regarded as good, while those between 781 and 850 are deemed exceptional.

The subprime cohort is probably impacted by growing inflation, and their capacity to make minimal monthly payments is becoming more and more brittle. Last week, Fed officials stressed how citizens with low incomes have been the most negatively impacted by rising inflation.

2016 saw Goldman enter the consumer lending market, and 2019 saw it soar to new heights as the primary issuer of Apple Card, the credit card used with Apple Pay accounts.

Currently, the bank has 14 million clients and a loan amount of $16 billion. In comparison to competing card products from other issuers, Apple Card typically approves consumers with poor credit scores at rates that are higher.

Goldman's loss rate is even greater than that of subprime lenders like Capital One (NYSE: COF), which had a charge-off rate of 2.26% with a comparable percentage of sub-600 consumers, at 30%.

The discrepancy in charge-off rates between the two businesses may be due to the fact that Apple Pay users are typically new customers who are statistically more likely to forget to make payments.

In any case, Goldman is required to set aside additional funds to repay delinquent debts. According to Bloomberg, the company's consumer segment is expected to lose $1.2 billion this year.