Apple may be leaving buy-now-pay-later space but its presentation at WWDC 2024 demonstrated banking and payments are still on its mind.
Moving in Silence
Back in November 2022, I picked Apple as Stock of the Month. It wasn’t a risky pick but the market was down and people were feeling sheepish.
However, in my write-up, I looked for reasons Apple could still have impressive long-term growth beyond the hardware sales and software subs.
One avenue that kept cropping up was banking.
Apple has always been a fan of flexing its owned platform, but its ambitions in the personal banking and payments space are especially impressive. If it can pull off what I predict they’re trying to do, it could mean undermining Visa, Mastercard, and banks old and neo.
Banking - Round & Round We Go
A headline at the end of 2022 caught my attention: “Apple, Goldman Sachs introduce interest-bearing savings accounts”. These new accounts were to become a perk for Apple credit card holders. It struck me as unusual as a savings account is not a typical perk for a credit card. Airline miles, cash back, and no interest for the first year, are all reasonable but a savings account is almost the complete opposite of a credit card. It says don’t spend your money, let it gain interest, and wait for a rainy day.
Why would Apple give its users such a responsible gift?
Because it wants to maintain its reputation as a trustworthy name in Big Tech and lure more of its users into its banking infrastructure.
Financial responsibility and security seem to be Apple’s game when it comes to consumer banking. Its current offerings, Apple Pay, Apple Cash, and the Apple Card, have been built with this in mind. The Apple Card helps users track spending, provides insights, has no fees, and plenty of cash-back options, especially if you use Apple Pay. Apple Pay, interestingly, is far more secure than your typical credit or debit card transaction as it requires your Face ID, doesn’t store your card numbers, nor does it provide them to vendors, and it doesn’t collect spending data to sell to advertisers, unlike Visa and MasterCard.
As you can see, Apple has a mini flywheel set up already. Join Apple Card, to access a high-yield savings account with Apple’s famous consumer-centered design, and use your card with Apple Pay to earn cash back which automatically gets deposited into your savings account.
While it was announced this week that Apple’s “buy now, pay later” option, Apple Pay Later, has been retired in favor of third-party integrations, how the iPhone-maker initially set this product up is interesting. Apple opted to handle the loans, risk management, and credit checks internally rather than handing them off to an outsider. It scooped up British firm Credit Kudos to help with this effort. This seems to be ushering in what I like to call the internal banking age, Apple calls it “Breakout”, and it’s just getting started.
Presently, card-to-iPhone payments are facilitated through third-party attachments provided by companies like Block Inc. (previously Square). This will likely go away in the coming year as Apple has been quietly working on an internal solution. In 2020, Apple picked up Canadian startup Mobeewave, which specializes in card-to-phone payments without the need for an attachment.
According to insiders, Apple wants to bring payment processing, fraud analysis, and banking customer service all under its roof. This will remove these responsibilities from its existing partners CoreCard Corp. and Green Dot Corp. and help fatten up its margins.
Importantly for consumers, it will mean the trustworthiness, security, and ease of use they associate with Apple will now come to everyday banking. I’m sure it will be a welcome bonus for the 1 billion global iPhone users.
If I was being especially speculative, I would say Apple is likely attempting to become a competitor to Revolut, Block’s Cash App, and Venmo, and will eventually attempt to circumvent credit card companies by controlling the entire payment infrastructure from phone to phone. At present, Apple still needs MasterCard and Visa’s help and probably will for the next several years.
It would appear, Apple’s dream of the iPhone replacing your wallet may just come true.
If we take a look at current Apple Pay users they lean heavily Western. The biggest mobile payment providers by users are AliPay and WeChat Pay, both based in China, Apple is third. But when it comes to transaction value, Steve Jobs’ baby has a resounding lead. In fact, in 2021, Apple oversaw $6 trillion in value, finally surpassing MasterCard, and behind only Visa. When it comes to transaction fees, value is all that matters.
Should you invest $1,000 in Apple right now?
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