Tech giant Apple is jumping deeper into financial services, moving away from its initial goal of providing finance solutions to retain customers and grow its core business of selling consumer electronics, to the broader aspiration of building a full-blown financial services offering and creating new revenue streams.

In an in-depth opinion piece, Alex Johnson, director of fintech research at investment advisory firm Cornerstone Advisors, looks at Apple’s current portfolio of financial products and services, and recent finance moves to understand the firm’s larger ambitions and predict what might come next for the tech company.

According to the report, while Apple had initially envisioned financial services as a means to improve customer retention and entice consumers to purchase Apple products, that ambition has evolved into a larger vision for its finance business with hopes that these products will eventually generate substantial revenue.

Strengthening its foothold within finance

This evolving stance is evidenced by Apple’s recent acquisitions, product announcements and news leaks that revealed not only the firm’s ambition to expand its portfolio of financial products and services, but also its desire to reduce its dependency on third parties and banking partners.

Apple has made some sizeable fintech acquisitions over the past couple of years that are a testament of the firm’s commitment to expanding its finance business, snatching up Canadian mobile payments company Mobeewave for US$100 million and British open banking credit reference agency Credit Kudos for a reported US$150 million, Johnson notes.

These acquisitions add on to the recently established Apple Financial, a wholly-owned subsidiary, which will be powering the firm’s forthcoming Apple Pay Later service scheduled for public release in the fall of 2022.

The move is a significant shift for the company since, up until now, Apple’s financial services have been backed by third-party providers and banking partners such as Goldman Sachs.

Instead, the new set-up will allow Apple to offer loans directly to consumers for its buy now, pay later (BNPL), taking middlemen out of the equation and allowing the tech firm to earn interchange fees from each transactions, retain control over its data, and help it accelerate the international expansion of its financial products.

These recent developments come on the back of an earlier report by Bloomberg which revealed Apple’s secret “Breakout” initiative that’s allegedly seeking to bring more financial services capabilities, including payment processing, risk and fraud analysis, credit checks, subscription programs for hardware purchases, and BNPL, in-house.

Apple’s existing portfolio of financial products and services

• Apple has launched or announced seven key financial products and services, Johnson enumerates. These include:
• Apple Wallet, an app that stores users’ credit and debit cards, loyalty and rewards cards, as well as credentials such as drivers’ licenses information and official identity documentations;
• Apple Pay, a digital payments services that facilitates contactless payments and transactions using credentials stored in the Apple Wallet;
• Apple Card, a credit card with cashback rewards designed primarily to be used with Apple Pay on Apple devices;
• Apple Cash, a checking account and digital debit card that allows users to send and receive money in the Messages app and Apple Wallet.
• Apple Tap-to-Pay on iPhone, a contactless payment acceptance capability that allows merchants to use their iPhone to support payments through Apple Pay, contactless credit and debit cards, and other digital wallets;
• The upcoming Apple Pay Later, a pay-in-four BNPL service which no fees or interest available for Apple Pay users to make purchases online; and
• The upcoming Apple Pay Monthly Installments, a point-of-sale (POS) lending service with interest rates determined by the merchant and the customer’s risk profile.

Looking at Apple’s financial services offerings, Johnson identifies a few key building blocks that comprise the firm’s financial infrastructure and ecosystem.

First, the Apple Wallet can be thought of as a container that stores money (Apple Cash), credit (Apple Card, Apple Pay Later and Apple Pay Monthly Installments) and identity, Johnson says. It wraps all these components with a transaction layer (Apple Pay and the physical Apple credit card), which interacts with other systems and components via near-field communication (NFC), QR codes and barcodes, and which facilitates transactions.

Taking this infrastructure into consideration and the fact that all the components in Apple’s financial services ‘stack’ are composable, Johnson believes there are at least 12 different financial products and services Apple could consider introducing in the near future.

First, the firm could develop a more robust checking account offering than what Apple Cash currently provides, with capabilities like direct deposits and early wage access. It could also introduce an improved debit card product with an actual physical card and embedded BNPL functionality, in addition to personal financial management features within the Apple Wallet app like spend categorization, budgeting and goal setting, and subscription management.

Other areas worth investigating, according to Johnson, include small-dollar paycheck advances and overdraft protection, high-yield savings accounts, investment capabilities, credit score monitoring, and health insurance with discounted rates for Apple Watch and Apple Fitness+ users.

Apple’s existing portfolio of financial products and services (white background) and what it could offer in the near future (red background), Source: Alex Johnson, Workweek.com, July 2022

Featured image credit: Apple