Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


No Cryptocurrency is not Coming to Apple Pay, soon

Apple Pay will not be accepting cryptocurrency anytime soon. Indeed, Apple (NASDAQ: AAPL) has no cryptocurrency plans.

The cryptocurrency press; however, claims Apple could offer a digital currency through Apple Pay. In fact, they are basing the Apple cryptocurrency hype on a single cryptic remark from an Apple executive.

“We’re watching cryptocurrency,” Jennifer Bailey, reportedly said to Christine Romans. “We think it’s interesting. We think it has interesting long-term potential.”

Apple has no Cryptocurrency Plans

Importantly, Bailey is the vice president of Apple Pay. Romans is CNN’s Chief Business correspondent. CNN claims Bailey made the remark to Romans at a CNN event in San Francisco.

Bailey’s remark shows Apple is merely watching cryptocurrency to see if it develops into a viable or lucrative product. Moreover, Bailey announced no concrete cryptoccurency plans like Facebook’s (NASDAQ: FB) ambitious Project Libra.

However, Apple is working closley with Goldman Sachs (NYSE: GS) which could be researching a stablecoin. To explain, Goldman is supporting the Apple Card virtual credit card which is available to Apple Pay users, Reuters reports.

Will Apple and Goldman Sachs Offer a Cryptocurrency?

Therefore, Goldman Sachs could offer a stablecoin or cryptoccurency through Apple Pay at some point. Notably, the Apple Card which is created by Goldman Sachs but distributed by Apple could be a test run for a digital currency or stablecoin.

To explain, the Apple Card is a virtual product; a line of credit users access, through Apple Pay. A stablecoin offers access to fiat currency in a bank account via a smart contract in a cryptoccurency.

I can easily imagine, Apple and Goldman Sachs offering access to stablecoins through Apple Pay. I think merchants and the public will be more likely to accept stablecoins because they make payment in fiat currencies like the Euro.

Is Apple making Deceptive claims about the Apple Card?

Strangely, Apple is making a potentially deceptive claim about the Apple Card. To explain at its website Apple describes the Apple Card as “A new kind of credit card. Created by Apple, not a bank.”

However, Goldman Sachs an investment bank supports the Apple Card. In addition, it is not clear if Apple’s engineers or Goldman Sachs’ engineers built the Apple Card. Interestingly, Goldman Sachs CEO David M. Solomon admits engineers make up 25% of his bank’s workforce, Market Mad House reports.  

Therefore, Apple is making a potentially deceptive claim about the Apple Card. The Apple Card could be the product of a bank, Goldman Sachs, and not Apple.

However, consumers are more likely to buy a product with the Apple name on it than a Goldman Sachs product. Even though, Goldman Sachs is the most powerful bank on Wall Street, most people are probably unaware of its existence. On the other hand, many consumers love Apple.

Are Apple and Goldman Sachs in Subprime lending?

Potentially deceptive claims are not the only Apple Card controversy.

CNN accuses Apple and Goldman Sachs of “subprime lending” in a recent article. To clarify, CNN claims Apple and Goldman Sachs could offer Apple Cards to some people with no credit scores or below average credit.

Interestingly, Goldman Sachs has been offering personal loans through its online platform for some time. For example, Goldman Sachs’ Marcus AI powered lending solution made $4.75 billion in personal loans as of 13 August 2019, CNN claims. In addition 13% of those loans or over one in 10 were to people with FICO scores under 660.

Oddly, the Marcus loans may not be subprime as CNN alleges. Instead, Goldman Sachs is lending to people with poor credit scores who have lots of money.

Will Goldman Sachs Make money from Marcus?

In fact, the FICO score is not a measure of wealth. Instead, they base the FICO score on things like delinquent payments, and reports to credit bureaus. Plus, the credit bureaus that compile the FICO make no effort to determine how much money people have.

Therefore, Goldman Sachs’ Marcus loans could be a safer bet than many bank loans. To explain, Goldman Sachs could be loaning funds to people who have money and lousy credit. For example, a successful entrepreneur who paid bills late.  

Thus, Goldman Sachs could make a lot of money from Apple Pay by using the Apple Card to identify millions of people with money who need loans. However, Marcus could get Goldman Sachs into trouble by issuing large numbers of loans that people will default on.

Can Goldman Sachs Make Money through Apple Pay?

Only time will tell if Goldman Sachs and Apple can make money from Marcus and the Apple Card. However, Goldman Sachs was the only major Wall Street investment bank to make money during the subprime mortgage crisis of 2007 to 2008.

To explain, Goldman Sachs made money by hedging or betting against that subprime mortgage loans could default. Notably, Goldman Sachs paid a $5 billion fine for misleading investors about securities subprime mortgages backed, The Guardian reports.

See Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan for more details on Goldman Sachs’ role in the subprime crisis and the “Big Short.”

In the final analysis both Apple and Goldman Sachs could be taking huge risks in financial services. However, given both companies history of making lots of money, it is likely the Apple Card and Marcus could generate lots of cash with or without cryptocurrency.