Credit Card Holders Are Struggling To Make Payments: Why The Biggest Losers Are Goldman Sachs, Apple Pay

Big credit card issuers have released data for delinquency and charge-offs for the month of August, lending a glimpse into the latest spending habits of Americans.

With prices soaring due to high levels of inflation — at 8.3% for August— some consumers have turned to credit cards in an effort to complement their increasingly limited budgets, while many are struggling to make payments.

Credit card issuing in the U.S. is rising. By the first quarter of this year, Americans held 537 million credit card accounts, up 6% from the previous year.

Credit card debt came down from an all-time high of $930 billion in late 2019, according to New York Fed data, but the average credit card holder in the U.S. still had $5,769 in credit card debt by the first quarter of 2022, with balances only slightly below pre-pandemic levels, according to MoneyGeek. 

Related: How To Pay Off Credit Card Debt In 5 Steps

While customers with good and excellent credit scores are keeping up with payments, subprime users appear to be struggling to close their debt, putting extra pressure on financial institutions. 

Of those big names, Goldman Sachs GS has taken a hit from this situation, causing investors to doubt the firm’s adventurous partnership with Apple AAPL as the main card issuer behind Apple Card the Apple Pay service.

Card Delinquencies, Write-Offs In August For American Express, Citigroup, Bank Of America, JPMorgan Chase

Most big credit card issuers published slight increases in delinquency — that is, a failure to make card payments by one month after the due date — for August.

American Express AXP reported a card delinquency rate of 0.8% in August, up from 0.7% in July and 0.6% a year earlier.

Net write-offs remained steady at 0.8%, equal to July and June rates, though up from 0.6% annually.

Credit card companies often write off certain debt as loss when they consider there’s no chance they’ll be able to collect it from the debtor, typically after six months of not receiving the payment. These are also called charge-offs.

Total loans in August for AMEX increased $200 million from July’s figures, and $800 million from June, to a total of $20.2 billion.

Related: How Many Credit Cards Should I Have?

For Citigroup C, the delinquency rate in August reached 0.82%, up from 0.79% in July and 0.80% one year prior.

Net charge-off was 1.33%, up from 1.19% in July.

Bank of America’s BAC delinquency rate climbed in August to 0.88% from 0.85% in July. This one, however, was down year-over-year from 0.90% in August 2021.

JPMorgan Chase JPM maintained its delinquency rate from July and June at 0.66%. The rate was up from 0.62% one year ago. 

Its charge-off rate went up to 1.15% at the end of August from 1.02% in July. 

Goldman Sachs' Apple Pay Venture Could Be Rotten Apple

Earlier this week, Goldman Sachs reported a loss rate on credit card loans at 2.93% from write-offs in the second quarter of this year. That’s the worst among big credit card issuers. 

According to CNBC, the reasons behind Goldman Sachs’ clients being further behind on their payments than those of other financial institutions is that user profiles are closer to those of subprime offerings, with one quarter of consumers presenting FICO scores below 660.

JPMorgan, for its part, only had 12% of its loans issued to customers under the 660 score.

Good scores are considered between 661 to 780, while excellent range from 781 to 850.

The subprime cohort is likely affected by rising inflation, with an increasingly fragile ability to make basic monthly payments. Last week, Fed officials emphasized the fact that low-income residents have been the hardest hit by rising inflation.

Goldman went into consumer lending in 2016, and took to the skies in 2019 when it became the main issuer of Apple Card, the credit card associated with Apple Pay accounts.

The bank currently has 14 million customers and a balance of $16 billion in loans. Apple Card is normally approved for customers with low credit scores at higher rates than competing card products from other issuers.

Goldman’s loss rate is even higher than that of subprime lenders like Capital One COF, which had a 2.26% charge-off rate, with a similar proportion of sub-600 customers, at 30%.

This difference between the charge-off rates of both firms could be explained by the fact that Apple Pay users tend to be new customers who are statistically more likely to miss payments.

Regardless, Goldman is having to set aside extra cash to cover for unpaid loans. The consumer side of its business is on track to lose $1.2 billion this year, according to Bloomberg.

Photo by rupixen.com on Unsplash.