NFU Blog

Apple speeds up move into financial services

One of the latest week’s biggest stories in finance is Apple’s move into Buy now – pay later (BNPL) and lending services. This is the confirmation of rumours having circulated during the last couple of months, that Apple has been moving into cooperation with financial actors and increased their focus on financial services. Is the latest move by the US Big Tech company a game changer in financial services?

On June 6, the news dropped that Apple will launch its BNPL service Apple Pay Later[1]. The move is seen as direct competition to Fintech companies, such as Klarna, that have been making large profits in the field during the last years. The service, still only available in the US, will be an addition to the already existing Apple Pay and will use Mastercard’s network to let you purchase in store or online and pay within six weeks, without any extra fees. This development comes just weeks after Apple acquired the British Open Banking start-up Credit Kudos[2].

Experts argue that the reason behind this push by Apple into the financial market is part of a strategy to boost their sales in other services such as Apple Music and iCloud storage. The news of the service was launched together with other new functions for the latest version of Apple’s gadgets and will require the latest update of iOS to function. The reason to choose BNPL as the service to push into is seen as a way to expand into financial services and at the same time steer clear of credit risks and banking regulation.

In Apple’s earlier attempts to move into the financial market, as for example with Apple Pay and Apple Card, the bank Goldman Sachs have been a partner where Apple is providing the service and infrastructure whilst Goldman Sachs is the financial provider and, hence, taking the financial risks. Reports from last week states that the Big Tech company now is leaving the cooperation with Goldman Sachs and will provide the loaning aspect of BNPL via the Mastercard network (still with some support from Goldman Sachs)[3]. With the new arrangement, Apple with earn money on the transactions fees and gain more access to the data of the interactions.

The news that Apple will move into BNPL services is adding competition to Fintech companies. During the last couple of months, we have seen a number of challenges emerge for Fintech. These include lower levels of e-commerce after the high-point during the pandemic, higher interest rates due to the current economic situation and pressure from investors. One example of this, is Swedish Klarna having had to lay off 10% of their workforce. Adding the competition of Apple will add further pressure to an already struggling sector.

NFU Analysis

With the introduction of Apple Pay Later, the Big Tech company now has a wide range of financial services (Apple Pay, Apple Card and peer-to-peer payments via Apple Cash) in the Apple Wallet. This is in line with the Big Tech (and larger Fintech) companies’ strategy to push into financial services by providing a platform that is easy to use and access and use as an edge towards traditional financial companies. One big question is if the move into BNPL, and the plans to move deeper into the lending market, will change the position of Apple on a possible application for a banking license and “full” move into finance.

What we can say for sure is that the latest week’s developments are further putting a question mark on the level playing field in financial services. As stated in the work by NFU on Fintech and its relationship with traditional financial actors, that relationship has been built to a large extent on cooperation and interdependence. When Big Tech companies such as Apple push into finance they are a competition towards not only traditional actors but also Fintech. Apple is among the top three largest companies in the world, which gives them both the opportunity to cherry pick where they want to invest and also raises the challenge of ‘too big to fail’. Earlier when Big Techs pushed into financial services, Wall Street did not meet the development with open arms. The cooperation between Apple and Goldman Sachs in mobile payments was seen as a compromise between the sectors. We will see what the responses will be to these latest developments.

One of the competitive advantages of Big Tech companies as Apple’s push into finance is connected to data. By building their company base on iPhones and other services that are used by billions of people, they already have a massive amount of data on potential financial customers. How will they use that and what will they use it for? It is obvious that the move into financial services is partly driven by the search for more data on their customers.

Another interesting aspect with Apple’s push into BNPL services is that it can put even more of a spotlight on a financial service that have raised a large amount of worry among policymakers and regulators in recent times. The services have been subject to criticism as it can get people into debt and that the level of understanding of the risk the customers take might be low. EU regulators have been keeping an eye on the development for a while, and the entry of Apple might bring the issue higher up on the agenda.

The big question now is if the latest moves by Apple will be a game changer for Big Tech in financial services. Throughout the years, we have seen multiple examples of Big Tech companies (Facebook/Meta, Apple, Amazon, and Alphabet/Google) launching financial services experiments, but the attempts have not seemed wholehearted. The latest moves by Apple can to a larger extent be seen as a strategy and we will see if it will be a start of a trend and who will follow.

Simon Jernberg
Policy Advisor NFU

[1] Apple to offer buy now, pay later credit in challenge to Klarna and Affirm | Financial Times (ft.com)

[2] Apple buys UK fintech start-up Credit Kudos (cnbc.com)

[3] Apple sidelines Goldman Sachs and goes in-house for lending service | Financial Times (ft.com)

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