Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Apple Could Help Goldman Sachs Grab a Piece of This $18.5 Billion Market

By Evan Niu, CFA - Nov 7, 2019 at 10:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

iPhone customers will soon be able to finance their purchases through Apple Card.

Buried inside Apple's ( AAPL -1.17% ) earnings conference call last week was an announcement that most investors and consumers probably paid little attention to. CEO Tim Cook announced that the Cupertino tech company is preparing to roll out a way for consumers to finance iPhone purchases with Apple Card, the credit card that Apple launched in partnership with Goldman Sachs ( GS -1.24% ) earlier this year. In characteristic hyperbolic fashion, Cook even went as far as to call the debut "the most successful launch of a credit card in United States ever."

That might give the famed investment bank, which has been expanding into consumer credit, exposure to this $18.5 billion market.

Apple Card displayed on an iPhone

Image source: Apple.

Paying for your iPhone with the credit card that lives in your iPhone

The financing offer will be structured nearly identically to the installment plans that the major carriers offer to buy smartphones: Customers can pay off that shiny new iPhone over the course of two years with 0% financing. The service is designed with convenience in mind, offering a seamlessly integrated way to buy an iPhone while spreading out the cost.

It's important to note that the offer won't have a material impact on Apple's accounting, as the company is not the one providing the financial backing. As the issuing bank for Apple Card, Goldman Sachs will play that role. That's similar to the iPhone Upgrade Program that Apple launched in 2015; the company outsources the underlying financing of the iPhone Upgrade Program to Citizens One, a subsidiary of Citizens Financial.

In doing so, Apple is still able to recognize the related iPhone revenue up front without having to defer those sales.

Installment plans are a big business

Thanks in large part to T-Mobile's Un-carrier transformation, the domestic wireless industry has evolved significantly over the past five years, shifting away from the subsidy model of yore to installment plans that serve the same purpose. Carriers leverage installment plans as a potent tool to tether customers, as those outstanding balances come due if a customer decides to cancel their plan in order to switch to another carrier.

Carriers take those installment plan receivables, package them, and sell them to bond investors in the form of asset-backed securities (ABS). ABS rightly earned a bad reputation during the financial crisis, but there's far less risk to the global economy when we're talking about securitizing a $1,000 phone that will be paid off in two years compared to a $2 million home to be paid off over 30.

Verizon had the first public smartphone-backed bond offering back in 2016, and the market has been booming ever since. Securitizing equipment-related receivables helps carriers improve cash flow while isolating the credit risk and protecting corporate credit ratings. As of the third quarter, here are the equipment-related receivables that the carriers have on their balance sheets.


Equipment-Related Receivables (Q3 2019)

Verizon ( VZ 1.36% )

$10.5 billion 

AT&T ( T 1.78% )

$4.4 billion 

T-Mobile ( TMUS 2.18% )

$2.4 billion 

Sprint ( S )

$1.1 billion 


$18.5 billion

Data source: SEC filings.

The forthcoming offer could potentially hurt customer retention at carriers, to the extent that iPhone buyers choose to finance those purchases with Apple Cards instead of carrier installment plans.

The iPhone Upgrade Program didn't seem to impact carriers much one way or the other. Let's see if the new Apple Card offer does.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$161.84 (-1.17%) $-1.92
The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$382.73 (-1.24%) $-4.81
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$51.42 (1.36%) $0.69
Sprint Corporation Stock Quote
Sprint Corporation
AT&T Inc. Stock Quote
AT&T Inc.
$23.46 (1.78%) $0.41
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
$112.77 (2.18%) $2.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.