The fact that BigTechs are moving into financial services and payments, in particular, is not a new trend. Google has Google Pay and it made an (unsuccessful) attempt to launch Plex account services with Citi. Samsung Money, a collaboration of Samsung and SoFi, provides debit card and deposit/current account products. And on the payment side, meta, the former Facebook, has launched payment products for both its Instagram and WhatsApp businesses. But whenever Google or Apple are making acquisitions or launching partnerships in the financial services business, it causes hot debates amongst hyper-excited commentators on how these two companies will be revolutionising the industry and how their respective inroads into financial services and payments will be the death sentence to banks and/or other financial service providers. Whilst the latter could not be further from the truth, it is still of huge interest to look at what these BigTechs are actually doing.
A couple of months ago, we did look at the Mobeewave acquisition by Apple and we argued at the time that with the newly acquired technology, Apple would be able to turn the iPhone into a payment acceptance device. So it was no real surprise that in February 2022, Apple announced that with the new iOS software update, Tap-to-Pay would be introduced to “empower merchants in the US to accept contactless payments”. The phone will become a terminal.
Only last week Apple has been at it again. For a reported $150m it acquired Credit Kudos, a UK based company that leverages Open Banking technology to “help lenders streamline underwriting, improve accuracy in decision-making, and support customers after acquisition.” Its software uses consumers’ banking data to make more informed credit checks on loan applications and it is a challenger to the big credit reporting agencies such as Equifax, Experian or Transunion. 2021 financial data for Credit Kudos was not available yet, but it reported losses of £4.5 million ($5.9 million) in its 2020 financial year, according to Companies House. So when the deal was announced speculation on what Apple is planning to do with that business went into overdrive. Is there an opportunity to launch an Apple card in the UK by leveraging Credit Kudos’ licenses? To date, Credit Kudos is registered as an Account Information Service Provider (AISP) under PSD2 but it does not have a banking license in the UK. That would not help with a UK card launch. And given that it is ‘only’ registered as AISP and not as Payment Initiation Service Provider (PISP) an extension of payment provision into the account-to-account payment space will not be feasible in the future either. So maybe the acquisition is really about buying technology and specific skill sets. Data enrichment and analytics, fintech partnerships, risk modelling – all provided by API technologies and a tech-savvy bunch of resources is clearly part of the equation but Apple has a history of making strategic acquisitions with clear objectives about monetising its bought-in capabilities.
Therefore the safest bet is that this acquisition will be used for Apple’s move into the (over)-hyped Buy-Now-Pay-Later (BNPL) space. Back in the summer of 2021, Bloomberg reported that ”Apple was working on a new service that will let consumers pay for any Apple Pay purchase in instalments over time. The upcoming service, known internally as Apple Pay Later, would use Goldman Sachs as the lender for the loans needed for the instalment offerings. Goldman Sachs has been Apple’s partner for the Apple Card credit card since 2019, but the new offering isn’t tied to the Apple Card and doesn’t require the use of one.” Maybe the partnership with Goldman Sachs hit some obstacles along the way. As Forbes magazine pointed out “Apple is a product company, not a data company like Google” and therefore the analytic capabilities that Credit Kudos will provide to Apple will be hugely valuable. The impact that the announced acquisition had on share prices of listed BNPL players that very day tells a story in itself about how industry analysts felt about the deal (both Affirm and AfterPay were down by 10%).
Whilst the BNPL play seems clear, the real question will be where the story ends. Are you willing to spend $150m on risk profiling capabilities to enable your customers to buy (increasingly) expensive iPhone/iPad products and pay for those in four instalments? Or is there even a bigger play? Is it part of an attempt by Apple to build a wider digital commerce ecosystem or super-app (look at what Square … I mean Block … has done or is doing)? It is way too early to tell, but most likely the acquisition is a stepping-stone for Apple towards fulfilling a much larger strategic ambition.
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