Consumer Banking and the Apple Credit Card Are Giving Goldman Sachs Trouble

Three years ago, Goldman Sachs took the plunge into consumer banking and so far the going has been rough: The new venture has cost buckets of money, while also creating culture clashes within the firm. Meanwhile, its highly-touted partnership with Apple forced the staid investment bank into an uncomfortable role as a junior partner. These and many other juicy tidbits—including Goldman brass confiscating a hoverboard belonging to the CEO of a newly acquired startup—are set out in a lengthy Wall Street Journal report, titled “Goldman Sachs Tries Banking for the Masses. It’s Been a Struggle.”

The article notes Goldman Sachs’ flagship consumer banking product, known as Marcus, has lost $1.3 billion since launching in 2016, largely as a result of expensive acquisitions and a high rate of default on loans. That default rate came about in part because Marcus launched without a bad debt collection team—a decision that reportedly reflected unease by Goldman that aggressive collections could contribute to its “vampire squid” image among the general public.

Meanwhile, Goldman’s partnering with Apple to launch the iPhone maker’s new credit card has also proved costly in terms of both money and prestige. According to the Journal, the product cost around $300 million to build, and also required the firm to deploy thousands of engineers to smooth out bugs and security holes—putting the bank’s other key initiatives on the back-burner.

Apple reportedly dominated the partnership in numerous ways, including by requiring Goldman not to charge late fees or sell customer data. The tie-up also forced the bank, which is accustomed to occupying high status roles, to accept a decidedly junior role vis-a-vis Apple according to the Journal:

When Apple unveiled the credit card on stage in March in Cupertino, Calif., it did so with a zinger: “Designed by Apple, not a bank.” Mr. Solomon and other Goldman executives watched from the audience. The same line was repeated in ads that Apple ran promoting the card.
In a final snub, Marcus executives weren’t allowed into a Tribeca loft that served as Apple’s command center in the days leading up to the card’s launch in August.

All of this has created strain within the firm as traditional Goldman types, who bring in large profits through trading and IPO underwriting, have had to accommodate the money losing retail operation. Even the very name Marcus has proved contentious as some in the firm worry it evokes a low-brand image. According to the Journal, the bank may soon rebrand all of its consumer products under the brand name “Goldman Sachs.”

Meanwhile, the culture clash inside the firm has reportedly led to high turnover rates, including three heads of product for Marcus in the past three years.

The influx of acquired startup employees has also led to conflicts over the firm’s identity as buttoned down bankers have had to share quarters with tech types. This included the hoverboard incident.

“Adam Dell, [the founder of personal money app Clarity Money] zipped around Goldman’s headquarters on a hoverboard until it was confiscated by legal staff after someone crashed it,” the Journal reports.

It’s unclear for now if all of this signals deep problems for Goldman Sachs, or if it just reflects standard growing pains as the bank undertakes new lines of business.

On a recent earnings call, Goldman’s CFO said he expects the current “drag” from consumer businesses will reverse into profit as the businesses scale in coming years. Meanwhile, investors appeared to respond positively to Goldman’s down market strategy, sending its stock price up by over 2 percent in response to second quarter earnings. (When asked for comment, a Goldman spokesperson referred Fortune to the CFO call referenced above.)

In a phone call with Fortune, a person familiar who spoke on the condition of anonymity because he was not authorized to comment publicly, said the losses were strategic and came as no surprise internally.

“These are deliberate investments in new businesses to enhance the long-term earnings power of our firm, not unexpected losses,” said the source.