JPMorgan Nears Deal To Take Over Apple’s Credit Card Program

Discussions between the country’s biggest bank and Apple accelerated in recent months, with Apple telling JPMorgan it is the tech giant’s preferred choice to replace Goldman Sachs GS 1.15%increase; green up pointing triangle as its card partner. JPMorgan and Apple have been negotiating since early last year, The Wall Street Journal previously reported.

Still, the deal hasn’t been signed, and there are chances that talks could unravel because of a number of challenges associated with the Apple program.

An agreement would be one of the biggest credit-card deals ever, cementing JPMorgan’s status as the largest credit-card issuer in the U.S. It would serve to bring two of the country’s most influential companies closer together, giving the bank a loyal base of Apple customers to whom it can pitch more financial products, and giving the Apple a sprawling consumer franchise to help it sell and finance more gadgets.

The Apple card has around $20 billion in balances currently at Goldman Sachs.

Efforts to move the program to a new issuer have been under way for at least two years. Goldman and Apple have engaged with a range of possible suitors from large credit-card issuers such as American Express, Capital One and Synchrony Financial to fintechs and private-credit shops, people familiar with the matter have said.

Separately, there has been a battle between the networks. Visa has offered a roughly $100 million payment to Apple to try to replace Mastercard as the card’s network, the Journal reported.

Several roadblocks have kept this program from moving so far.

First and foremost is its high exposure to subprime borrowers. That is affecting the price that JPMorgan would be willing to pay Goldman to take on the balances, the people said.

As of the end of March, some 34% of Goldman’s credit-card balances are tied to people with less than a 660 credit score, on a scale that tops out at 850. At JPMorgan that figure was 15%, while at Capital One, which has for decades specialized in subprime cardholders, borrowers with a credit score of 660 or lower held 31% of balances.

Goldman cardholders were behind on payments by 30 days or more on roughly 4% of credit-card outstanding balances as of the end of March, according to Goldman’s financials. The delinquency rate on credit-card loans across all commercial banks was 3.05% for the same period, according to the latest data from the Federal Reserve.

Goldman had $2.45 billion set aside for potential future credit-card loan losses at the end of March.

Most credit-card issuers make up for having delinquent borrowers by charging late fees. But the Apple card with Goldman doesn’t charge late fees, wiping out a key revenue generator.

The combination of high subprime balances and no late fees has led several credit-card issuers to pass on pursuing the program, unless they could get it at a huge discount, people familiar with the process said.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com