Financial services

Apple’s advances in financial services come as no surprise

So why is a hardware and software vendor getting into the Buy Now, Pay Later (BNPL) marketplace? The iPhone is currently Apple’s primary driver of sales, earnings, and share price growth, and that isn’t expected to change any time soon. It’s the main reason the Cupertino operation became the first $1 billion company in history, and its consistent approach to annual smartphone updates always seems to work with consumers.

That said, Apple’s biggest source of growth over the past five years has come from its services division. This includes the App Store and Apple Music, but also AppleCare, Apple Pay, iCloud storage services, AppleCare warranties, subscriptions and the Apple Card. The latter was formed following a partnership with an existing bank, Goldman Sachs, and integrated financial services in order to get into the market, but it was a bit surprising not to see more direct competition at this day.

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

Apple then bought startups Credit Kudos and Mobeewave which would allow the company to turn iPhones into payment terminals. And now comes the news of its Buy Now, Pay Later entry.

The Apple Pay Later service will unsurprisingly be rolled out first in the United States. It will work using Mastercard network and will be integrated with Apple Wallet. It will allow Apple iPhone and Mac users to finance the purchase in four installments over six weeks, interest-free, at any online and physical location that supports Apple Pay.

By the way, this is happening at an interesting phase in the evolution of BNPL in the UK. Klarna, the main provider in the UK, began sharing customer data with credit reference companies Experian and TransUnion earlier this month. This means that credit card companies will be able to see transactions and debts when performing formal checks on potential borrowers.

Apple hasn’t said whether it plans to enter the UK market, but it’s a growing market there. Klarna says it has 16 million active users in the UK, which you think would surely please Apple, which has a history of rolling out new services in the UK as soon as it expands them outside the UK. United States.

What is remarkable, however, according to anotherBloombergreport, is that Apple will handle BNPL loans in the US on its own without a partner bank, opting to use its subsidiary Apple Financing LLC for credit checks and loan decisions. Could this mean that Apple is using BNPL as the first step in a much larger loan plan?

Previous Pivot

For skeptics who doubt that an industry giant can make a successful financial services pivot, remember General Electric (GE). Originally a manufacturing company founded by Thomas Edison, GE ventured into financial services with the creation of GE Capital to provide credit to help purchase its products. Just before its CEO decided in 2014 to divest most of its financial services business, GE Capital had more than 35,000 employees worldwide, operating in more than 40 countries, with total assets of $499 billion. dollars.

Now there are many lessons to be learned from GE Capital’s failures in financial services – particularly its exposure to auto-prime lending when the credit crisis hit – but it shows that a huge and profitable business can get off the ground. in financial services and successfully take on monolithic organizations.

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

Mark Lusted is Managing Director of MagiClick UK