Financial Services News

Apple’s advances in financial services is no surprise

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So why is a hardware and software provider moving into the Buy Now, Pay Later (BNPL) market? The iPhone is currently Apple’s main driver for growth in sales, profits, and share price and this doesn’t look likely to change any time soon. It was the main reason why the Cupertino operation became the first $1trn firm in history and its steady approach to annual smartphone updates still seems to work with consumers. 

That said, Apple’s largest source of growth over the past five years has been from its services division. This comprises the App Store and Apple Music but also includes AppleCare, Apple Pay, iCloud storage services, AppleCare warranties, subscriptions and the Apple Card. The latter was formed as a result of a partnership with an existing bank, Goldman Sachs, and embedded finance services in order to dip their toe into the market, but it’s been a little surprising not to see more direct competition to date.

As a technology leader I read with interest earlier in the year a report in Bloomberg that Apple was “developing its own payment processing technology and infrastructure for future financial products, part of an ambitious effort that would reduce its reliance on outside partners over time, according to people with knowledge of the matter… That includes payment processing, risk assessment for lending, fraud analysis, credit checks and additional customer-service functions such as the handling of disputes.”
 

Apple subsequently purchased startups Credit Kudos and Mobeewave which would enable the business to turn iPhones into payment terminals. And now comes the news about its Buy Now, Pay Later entrée. 

The Apple Pay Later service will unsurprisingly be rolled out first in the US. It will operate using Mastercard’s network and will be embedded into the Apple Wallet. It will allow Apple’s iPhone and Mac users to finance purchase in four instalments over six weeks, interest-free, at any online and physical location that supports Apple Pay. 

As a sidenote, this is happening at an interesting phase in the evolution of BNPL in the UK. Klarna, the leading provider in the UK, started sharing customer data with credit reference companies Experian and TransUnion at the beginning of this month. It means credit card companies will be able to see transactions and debts when conducting formal checks on potential borrowers.  

Apple hasn’t commented on whether it has plans to enter the UK market but it’s a growth market in this country. Klarna says it has 16 million active users in the UK which you would think would surely appeal to Apple, which has a habit of rolling out new services to the UK as soon as it expands them out of the US. 

What is notable, however, according to another Bloomberg report, is that Apple will deal with the BNPL lending in the US on its own without a partner bank, opting to use its subsidiary Apple Financing LLC for the credit checks and loan decisions. Could this mean Apple is using BNPL as the first stage in a much wider lending plan? 

Pivoting precedent 

For those sceptics out there who doubt that an industry giant can make a successful pivot into financial services, remember General Electric (GE). Originally a manufacturing business created by Thomas Edison, GE moved into financial services with the establishment of GE Capital as a way to offer credit to help purchase its products. Just before its CEO decided in 2014 to divest the business of most of its financial services, GE Capital had over 35,000 employees across the globe, operating in more than 40 countries, with total assets of $499bn.  

Now, there are many lessons to be learned from GE Capital’s failings in financial services – particularly its exposure to self-prime lending when the credit crunch hit – but it shows that a huge and profitable corporation can move into financial services and successfully take on existing monolithic organisations.  

It makes total sense that Apple, with its existing presence in financial services with the Apple Card and Apple Pay, would branch out further. It’s a trusted player in finance and its brand is the most valuable in the world. The real question should be if this is the limit to Apple’s aspirations within financial services or just the beginning? 

Mark Lusted is chief executive of MagiClick UK 

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