The news: JPMorgan Chase will take over the $20 billion Apple Card portfolio from Goldman Sachs. Chase reportedly purchased the portfolio at a more than $1 billion discount, per the Wall Street Journal.

Apple cardholders with connected high-yield savings accounts will have the opportunity to either roll over their accounts into native Goldman savings or transition to new Apple accounts managed by Chase. Mastercard will remain the payment network for the card, fending off Visa’s aggressive $100 million takeover bid. 

The transition will take two years.

How we got here: Goldman Sachs exited consumer finance after its experiment with issuing the Apple Card and other ventures soured. Apple also wanted out of their partnership, per Bloomberg.

• The bank was hit with $89 million in penalties by the Consumer Financial Protection Bureau for mishandling consumer disputes and misleading cardholders.
• Apple and Goldman had a nontraditional partnership that included Apple’s mandatory start-of-the-month billing structure and no late fees, which curbed Goldman’s ability to turn a profit.

Winners of the deal: JPMorgan, Goldman Sachs, and Apple all stand to benefit.

• Goldman is able to wash its hands of its Main Street push, after scandal and profitability issues.
• Apple partners with a powerful issuer that can scale its product with more resources.
• And JPMorgan gets an opportunity to cross-sell financial products to Apple’s 12 million cardholders.

Challenges ahead: Chase will inherit a portfolio with far more subprime exposure than the bank is used to. As of April, 34% of Apple cardholders were subprime, versus Chase’s 15%. 

But JPMorgan’s current outstanding credit card loans are an order of magnitude larger than the Apple portfolio—one of the reasons JPMorgan likely won out was its ability to absorb that risk while it adjusted the portfolio’s lending standards. 

Implications for lenders: Now that JPMorgan Chase has the Apple Card in its credit card portfolio, middle-market card issuers should take notice. Chase already has a premium pipeline with its Sapphire cards, which it likely will want to preserve for its wealthiest customers. 

Given Apple products’ ubiquity in US adults’ work and personal lives, Chase can use this card to pick up middle- and working-class cardholders who were sidelined as issuers tightened underwriting. With 0% interest Apple Card Installment Plans, this could put buy now, pay later (BNPL)-enabled cards on the back foot, as it currently offers 3% cash back on transactions completed through Apple Pay—way more than the subscription benefits Klarna offers.