Citigroup Reportedly Pulled Out of Apple Card Deal Over Profitability Concerns

Goldman Sachs wasn’t the only investment firm eyeing Apple’s upcoming credit card.

According to a new report from CNBC citing people familiar with the matter, Citigroup had been in advanced talks with Apple for its upcoming credit card but pulled out amid concern that the partnership would not generate acceptable profits.

While Apple was shopping around the idea of its Apple Card, many banks were interested in partnering with the Cupertino company, one being Citigroup. However, after extensive negotiations, the firm backed out of the deal, wary of the risk involved in such a type of partnership:

Within the industry, the deal is widely perceived as one that’s risky for a bank to take on. Citigroup was in advanced negotiations with Apple for the card but pulled out amid doubts that it could earn an acceptable profit on the partnership, according to people with knowledge of the talks. Other banks, including J.P. Morgan Chase, Barclays and Synchrony, also bid on the business. Apple and the banks declined to comment on this story.

“There’s a danger for any bank entering deals like this from a profitability standpoint,” said Forrester analyst Peter Wannemacher. “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.”

No fees of any kind are part of the deal with the Apple Card, one of the many that are viewed as being consumer-friendly. Additionally, software for the Apple Card helps customers not only stay out of debt but also gives them options to pay it down quickly if it happens. These elements, among others, make it harder for banks to make money off the customer. That includes the calendar-based billing:

Even features like the card’s calendar-based billing can impact a lender’s cost of funding and servicing, since customers’ borrowing will be concentrated at month-end, rather than spread out over weeks.

Goldman Sachs eventually stepped into Citi’s place, though Citi was already in advanced stages of negotiations for the card, reportedly.

“Dude, if that portfolio ever makes money, I’m buying you a beer,” an employee at the card department of a competitor reportedly texted a Goldman Sachs staffer.