Apple is to become a bigger FORCE in Payments

🇬🇧 Apple has just bought Credit Kudos, the British FinTech using Open Banking to perform better credit checks

Facts and figures:

The deal values Credit Kudos at around $150 million. The company, founded in 2015, provides services to lenders such as banks and credit unions, offering products which help to streamline underwriting, support customers after acquisition and improve accuracy in decision-making, according to its website. It last received venture capital funding in early 2020, and in just three rounds has raised a total of £7.8 million.

Historically, Apple has used M&A as a tool to enrich its most popular product of the moment, with a focus over time that has shifted from computer to smartphone. Many of Apple’s top acquisitions have been aimed at building and improving its largest success to date, the iPhone. Four of its largest acquisitions focus on chip performance, including Intel’s smartphone modem business, Dialog Semiconductor, Anobit Technologies, and PA Semi.

Source: CBInsights

While Apple's FinTech acquisitions have been smaller in value, key partnerships with Transferwise, Bitpay and Goldman Sachs expose Apple’s goal to become a bigger force in payments.

This year Apple will be releasing a new feature for small businesses in the US called ‘Tap to Pay’, a service that enables merchants to accept payments with a tap on their iPhone.

The launch of this feature follows the earlier acquisition of Canadian startup Mobeewave in 2020, for $100M. Mobeewave specialized in letting shoppers utilise their smartphones to access a credit card and process payments. The system works via an app and does not require any further hardware beyond a Near Field Communications (NFP) chip, the likes of which have been included in iPhones since 2014.

How Apple Card began:

Through Apple’s partnership with Goldman Sachs and Mastercard, the company was able to launch the Apple Card (a credit card) in the United States in 2019. In the six weeks after its launch in the US, the firm reported that Apple Card consumers had already run up $736 million in loan balances.

Source: Apple

How Apple Card works:

Essentially, the user can use the Apple Card to pay for things up until their personalised credit limit set by the company. After this, the user owes Apple the full amount spent on the card, but does not owe annual, over-the-limit, foreign transaction or late fees. However, standard industry interest rates are added if payment is late, and these range between 10.99% to 21.99%.

How Apple Card will expand:

In 2019, Apple’s CEO Tim Cook explained that in order for Apple to develop Apple Card in other countries, it must rely on local partners. It only makes sense that the acquisition of Credit Kudos is part of this plan to expand, and despite the various FinTechs offering payment services in Europe and the UK, Apple has a unique business model which gives it a certain market advantage.

How Apple Card compares:

According to Ron Shevlin, Chief Research Officer at Cornerstone Advisors, instead of offering a cashback on travel, restaurants and groceries, like the rest of the market, Apple offers 3% back on spending with its selected partners such as Uber, Uber Eats and Nike, and 2% from purchases at other establishments, providing the rewards in the form of Apple Pay funds which encourages customers to continue to use the card. Shevlin states that no other issuer in the market can pursue that strategy.

For many iPhone owners tossing up between Apple Card and Revolut, for example, it’s a no-brainer, as unlike Revolut which caps cashback at £12.99 monthly, Apple Card offers unlimited cashback which doesn’t expire. Meanwhile, Monzo and Starling Bank both use Tail as their cashback provider.

Source: Apple

What Apple x Credit Kudos means:

The collaboration between Credit Kudos and Apple means that not only will Apple Card soon arrive in Europe, but the company’s already unique business model will be even further differentiated from those of competitors.

This is because Credit Kudos performs credit checks on a person’s current finances rather than their financial past. From a business perspective, this is a good way of increasing the number of eligible customers. People who would otherwise be refused credit from Experian and Equifax will turn to Apple Card.

Credit Kudos also offers Apple certain data aggregation tools like those offered by Plaid and Finicity. In the Open Banking sector, direct access to data is crucial for financial institutions.

This of course raises questions concerning the social consequences of providing loans that may accrue debilitating debt or customers, however the Credit Kudos’ acclaimed goal is to make the credit scoring system fairer for everyone.

If you are interested in how the banking industry is changing and what everyone should know about digital banking, take a look at our latest research The Ins and Outs of Digital Banks.