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From iPhone to iBank: Analysing Apple’s Embedded Finance Adventures

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Think about the biggest brands in the world – you’ve probably got a few names popping up in your mind. What makes these brands global phenomenons? Their products, for starters, but more importantly, their loyal user base. Loyalty can make or break a brand. And when you’re loyal to a brand, you are loyal. So think of a scenario where a brand you love has introduced something new. Your automatic reaction is, “This is so cool, sign me up!”. 

Hook, line, and sinker.

Apple started with the desktop computers – pretty cool, shattered the ceiling with the iPod – so cool, took it to the next level with the MacBook – super cool, stepped up its game again with the iPhone – super duper cool, then came the iPad, the Apple Watch, the AirPods, and so much more in between – cool cool cool. If you’re one of the 1.8 billion active device users of Apple, you’re most probably a fan of one product or the other.

With so many products across different categories, the main question for Apple is – how do we increase user loyalty/stickiness/engagement? Well, you make products that are a class apart, and you also keep improving and introducing new features. The features can be as simple as the copy-paste between connected devices or as elaborate as turning your iPhone into your wallet that gives you access to all kinds of financial products – cash, card, credit, savings and payments. Financial services provided by brands might be a tough nut to crack, but it can do wonders to improve loyalty/stickiness/engagement. And Apple is doing just that.

Apple remains one of the earliest bigtech firms to experiment with integrating financial services into their existing hardware and software offerings without securing a full-stack banking licence. Since the introduction of Apple Pay back in 2014, the tech giant has introduced an array of financial services, starting with Apple Card, Pay Later, and business solutions, cementing its position to take a bite out of the financial services industry. The company’s latest offering, a high-yield savings account in partnership with Goldman Sachs, puts it in a strategic place to build a business model around its financial offerings that may act as a robust underpinning for its future business. 

We’ve previously looked at Apple’s open banking initiatives and fintech activities till Feb 2022, and now with this post, we take a look at some of its more recent financial forays.

Expanding Horizons: Apple strengthening its presence in the world of finance

Apple started dipping its toes in the financial services industry with the introduction of an innovative payment solution built into every iPhone 6 and 6 Plus model. Since its launch in 2014, Apple Pay ranked number one for payment apps used within the last month among American teens according to a 2023 survey conducted by Piper Sandler. The company’s launch of its payment subsidiary in 2017 signifies its intentions to further innovate and expand Apple Pay, with the payment business now generating almost $9B a year. These developments are in line with Tim Cook’s statement – “The growth of Apple Pay has been absolutely stunning. And there’s still obviously a lot more there to go because there’s still a lot of cash in the environment. And so I think that both of these and whatever else we might do have a great future ahead.” 

The annual 2022 Debit Issuer Study from Pulse reports that Apple Pay accounted for 88% of transaction volume and 89% of the dollar volume % of all US mobile wallet transactions. By leveraging its brand value and loyal customer base, the company ventured beyond payments and wallets to solve some of the problems that have plagued traditional banking for years. Apple’s intention to carry out lending without any external banking partners goes back to 2021 when the bigtech incorporated Apple Financing LLC to offer loans directly for the Apple Pay Later service. As of April 2023, Apple has doubled down on this vision by acquiring lending licences and registrations across 15 states in the US. The company’s acquisition of Mobeewave and Credit Kudos further signifies its intentions to strengthen its arsenal of infrastructure modules to power its credit offerings. Since its introduction in early 2022, Apple Tap-to-Pay has witnessed significant growth in the market share of POS payments, fueled by partnerships with Stripe, Square, and Adyen. With organisations across the globe enabling their users to pay using Apple Pay, the tech giant’s finance offensive continues to gain momentum, spearheaded by its payment innovation. 

Moving Beyond Devices: Apple's diversified financial product line

Apple’s move to consolidate financial services under one roof indicates a wider objective of retaining users within its own ecosystem. Prior to the launch of a market-leading savings account, the bigtech had already established its own payment and wallet platform, credit card, peer-to-peer payment capability, a BNPL service, and tap-to-pay solutions for businesses.

Apple’s Embedded Finance Playbook

Want to understand Apple's fintech strategy in detail from inception to the present and what it might look like in the future? Purchase our latest report, “Apple’s Embedded Finance Playbook” now and get access to some of the best-in-class fintech insights.
Report

Payments: Apple Pay was launched in partnership with JPMorgan Chase in the United States and supports credit and debit cards from the three major payment networks, including American Express, MasterCard, and Visa. In the United Kingdom, Nationwide, NatWest, Santander, and the Royal Bank of Scotland were the launch partners for the mobile payment system. Owing to the high adoption rate of Apple devices in developed and developing countries and the growing popularity of digital wallets and instant payment features, Apple Pay has increased its footprint to over 76 countries. However, since partners like Green Dot are focused on the US, services such as peer-to-peer payments and Apple Cash are available only in the tech giant’s home soil, limiting its ability to grow. 

Cards: Apple’s desire to reach as many of its customers as possible with a credit product dates back to the late 1990s when Apple held discussions with Capital One about creating a joint card. Apple card, the company’s co-branded credit card that launched in 2019, counted 6.7 million users as of early 2022, according to a Cornerstone Advisors survey of credit card users. According to CNBC, Apple’s proprietary credit card reportedly approves customers with moderate to low credit scores in a bid to appeal to underserved users. The tech giant currently partners with Goldman Sachs to carry out credit checks for its credit card. The approval process is done through the iPhone wallet app by Goldman, with the bank leveraging Provenir’s and TransUnion’s capabilities to confirm a user’s identity and credit bureau records. The Apple Card presently uses CoreCard as its core processor, overseeing the process of sending transaction details to a bank for approval. Credit card issuers like Visa and Mastercard split interchange fees with Apple and issuing bank partner Goldman Sachs. Daily cash rewards from spending on Apple’s credit card are deposited into Apple Cash, a prepaid digital card held in the iPhone’s digital wallet and issued by Green Dot Bank. Apple Card Family, the tech giant’s latest update to its credit card, allows two people to co-own an Apple Card and share and merge their credit lines while building credit together equally. It also enables parents to share their Apple Card with their children while offering optional spending limits and controls to help teach smart and safe financial habits.  

Credit: Apple’s launch of its BNPL offering, dubbed Apple Pay Later, was quick to grab attention, as the tech giant sidestepped its partners to offer lending services via its wholly owned subsidiary, Apple Financing LLC. The business has acquired necessary lending licences across 15 states in the USA to offer the feature and doesn’t plan on shifting that responsibility to a financial service, according to reports from Bloomberg. Apple Pay Later will allow customers to split up the cost of any Apple Pay transaction over four instalments across six weeks. The company funds the loans largely from its own balance sheet, which had about $165B in cash and marketable securities as of the first quarter of 2023, with total debt of $111B. Apple’s credit card partner Goldman Sachs retained a small role, with the bank being the issuer of the Mastercard payment credential used to complete Apple Pay Later purchases. Apple’s longer-term BNPL program, called Apple Pay Monthly Instalments, involves partners including Goldman Sachs and has a higher maximum lending amount, with competitive plans offering different interest rates and payoff deadlines.

Small Medium Businesses: Apple’s Tap to Pay – a system for collecting electronic payments via an iPhone or iPad – marked the bigtech’s entry into the payment processing space. The feature enables merchants to accept Apple Pay, contactless credit and debit cards, and other digital wallets through a simple tap on their iPhone without the need for any additional hardware or payment terminal. When making a payment, the iPhone uses its NFC chip to verify the transaction, and the amount to be paid is displayed on the screen along with a small NFC logo that guides the customer on where to place their iPhone, Apple Watch, or NFC-enabled bank card. According to a 451 Research survey, 42.5% of businesses felt offering shoppers alternative payment methods (APM) like Apple Pay was of high importance to their organisations. Apple’s $100M acquisition of Canadian start-up Mobeewave has been pivotal in the development of a closed-loop payments business as a sequel to Apple Pay. With Stripe, Adyen, Square and Fiserv already accepting Tap-to-Pay, Apple remains poised to capitalise on the growing APM market, fueled by the increasing willingness of both retailers and consumers to adopt digital payment methods. 

Savings: At a time when the American banking industry is plagued by the frequent debacles of financial institutions, Apple introduced a co-branded high-yield savings account in partnership with Goldman Sachs, offering 4.15% annual returns to savers. According to Forbes, the savings account attracted nearly $1B in deposits over its first four days, with over 240,000 accounts having been opened by the end of launch week. The account will be displayed on a dashboard in Apple’s digital wallet, where users can track their balance and interest earned. Apple’s savings account is available only to its credit card users in the USA, which in turn will require an iPhone – thus fulfilling its long-term goal of keeping users within its ecosystem. The savings account, which has no fees or minimum deposits or balance requirements and is FDIC insured, is indicative of the fact that while the traditional banks take a more cautious approach, Apple is moving at warp speeds to broaden its fintech footprint. 

According to Bloomberg, Apple’s in-house innovations are part of a broader “Project Breakout”, whose aim is to break away from its existing fintech partners. But even if future products don’t rely on partnerships, Apple doesn’t plan on dropping their partners from present offerings. Apple is not the only tech company to foray into financial services, with its industry counterparts Meta and Google having also pursued ambitious financial initiatives only to later scale them back. However, Apple remains best placed to decrypt the financial industry puzzle, having already received a head start with Apple Pay. 

Apple's Lending Licences: A state-by-state breakdown

Apple has identified specific US states with moderate to low credit scores, younger populations, and higher per capita GDP as target markets for its financial offerings. Having already secured lending licences in these states, the tech giant is looking to expand its reach by tapping into regions where consumers may not have a well-established relationship with traditional financial institutions. By offering competitive interest rates and user-friendly financial products, Apple plans to capture a new segment of customers who are digitally savvy and seeking convenience in their financial transactions by providing access to credit and financial services to underserved individuals who are overlooked by traditional lenders.

Apple's Financial Future: Advancing innovation and inclusion in the digital age

Apple has the unique advantages of consumer affinity, tech know-how, brand value, a large device install base, and a market valuation greater than the GDP of major countries. According to Gallup’s annual “Confidence in Institutions” survey, prior to the SVB debacle, only 27% of Americans were confident in their banks, whereas Apple secured the top spot for the tenth consecutive year in 2022, according to Interbrand’s annual Global Best Brands ranking. Apple has no intention of becoming a bank and is rather focused on positioning its digital wallet to be the complete dashboard for consumers’ financial lives. By combining savings, peer-to-peer transfers, lending, and payments with tap-to-pay in-store and the Apple Pay button at online checkouts, the tech giant is positioned to offer a lifestyle-finance proposition. There is a decent chance of you paying via Apple Pay for our abovementioned   detailed report on the tech giant, which just goes to indicate the strategic positioning of Apple to dominate the interaction between consumers and merchants by leveraging the growing availability of digital payment channels, both online and in physical stores.

Purchase our latest report, “Apple’s Embedded Finance Playbook” now and get access to some of the best-in-class fintech insights.

Authors

Founder & CEO | sanjeev@whitesight.net

Sanjeev is a fintech aficionado who loves to explore the depths of the industry as much as he loves to explore the depths of the ocean in his scuba gear. He is the founder and CEO at WhiteSight, bringing a wealth of research and advisory experience to the fintech world.

Senior Research Associate

Risav is a senior research associate at WhiteSight, where he spends his days navigating the complex fintech landscape and poring over market trends. When he's not decoding the world of fintech, you'll find this sports fanatic decoding the perfect curveball on the football field.

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