For a couple of years, it has been an accepted reality that the smartphone market is a mature one. As a result, companies have been looking to expand their portfolios beyond the smartphone. Perhaps there is no company more important to watch in this sense than Apple. The iPhone is the lifeblood of Apple, still accounting for 50% of the company’s revenue. There have been many theories about what is next for Apple. Maybe they will finally dive into the mixed reality world with the long-rumored Apple AR glasses? Or maybe compete with Tesla in the even longer rumored Apple Car. Let me present another possibility: Apple is trying to become a financial services company.
You may be wondering, why would Apple think of itself as a financial services company? Apple is a company that has recognized that the road to profitability in the modern consumer tech environment is through recurring revenue. This realization is evident through the launch and support of services such as Apple Music, Apple Arcade, and Apple One. The logical next step for a company as aspirational as Apple is to then control where the money that is spent on these services is stored and moved.
One of the most important things to possess when becoming a financial services company is to have trust and equity built up. Most people will not want to store their money with a company that they feel has a checkered or suspect past. Among tech companies, Apple still has an overwhelming amount of brand equity and trust in an environment that has grown more questioning of tech companies. Apple enjoys a level of prestige reputation that companies like Meta, Amazon, and Google might not. The general view of Apple as a company is that of an American success story where its late founder, Steve Jobs is revered as a sort of modern-day prophet. If any tech company was going to be successful with a pivot towards finance, Apple is that company.
Apple has been gearing up for this eventual pivot for years when you think about it. It has been nearly a decade since the company unveiled Apple Pay as a mobile payment solution, making the process of using your phone as a payment tool normalized in the United States. And ever since then Apple has been adding features to make paying with your phone (and other Apple devices) easier, safer, and more practical. They have started to add support for more sensitive documents like vaccination records and identification cards. The company has gradually added facets to its financial services portfolio that have culminated in the next step in its maturation process. Let’s walk through some of these steps.
Apple’s financial ambitions started with Apple Pay. The idea was to bring credit card payments to the iPhone as a way of using the device as a user’s de facto wallet. This was meant to be a hub where credit cards, debit cards, and loyalty cards would live. It relied on NFC technology (which was not new in the Android world) and a chip the company called Secure Element that ensured enhanced privacy for the end-user.
The draw of Apple Pay was that it would anonymize the user’s card information making identity theft harder to accomplish, especially in a world where credit card skimming was a common practice for thieves. And due to the popularity of the iPhone in the United States (over 50% market share), the feature instantly impacted the credit card terminal infrastructure. Shortly after Apple released this feature, terminals across the country started supporting the contactless payment method, and today most places around the country that accept credit cards accept Apple Pay.
Apple Pay has also infiltrated the world of online payments as well, with many websites now offering an option to pay with Apple Pay. This can be viewed as the second step of the integration of Apple Pay in the eyes of the everyday user. Apple started to position Apple Pay as a preferred payment method for Apple users, and it has worked. Over 507 million people actively used Apple Pay in 2020 and that number has only increased since then. In under a decade, Apple has changed the habit of paying for things for so many people, setting up its foundation as a trusted financial entity.
Roughly 5 years ago, there was an explosion in a new kind of payment app: the peer-to-peer mobile transfer. These apps are an evolution of asking a friend for some money in a pinch. Users of the app have their bank accounts or cards connected and can transfer money using the app which can then be deposited into the recipient’s bank account. Apps like Venmo, Cash App, and Zelle have dominated this space for years. Their success in 2017 promoted Apple to enter the ring with Apple Cash.
Apple Cash offered the convenience of the other P2P apps but with the added convenience that it was built-in to the iPhone and as such did not require installing a third-party app or creating a new account. Apple Cash is also built into iMessage creating seamless integration for friends to request and send each other money without having to leave their conversation. And because it is integrated into Apple Wallet as well money that was sent could easily be spent using Apple Pay without having to transfer anything to a bank account. In essence, Apple created a simpler solution for iPhone users to send money to each other.
This was yet another step in ensuring that Apple is a trusted entity when it comes to people’s money. This was saying that not only could you trust Apple to store cards and pay with them but you could also trust them to securely send money to your family and friends. And because Apple controls so much of the experience on the iPhone these features are front and center where the end-user is encouraged to use them. Yet another element of the financial trust equation is solved for the company.
Having contactless payments and peer-to-peer transfers is great, but there are still situations where having a physical card is needed. Whether it is a restaurant, a store with an older terminal, or at the gas pump these situations still arise. And with this, came Apple’s next financial challenge to overcome: the physical credit card. Their solution was the Apple Card.
The Apple Card is a physical credit card that just screams Apple the moment that you look at it. The card is extremely simple in design with no numbers or fine print to be seen anywhere. It is constructed of titanium (making it incredibly heavy for a credit card) with the user’s name being laser-etched. Much like other Apple products this card scream premium and expensive. The numbers are securely stored in the Apple Wallet app, yet again ensuring that the user is fully connected to Apple’s secure financial system that it has built with Apple Pay and Apple Cash.
Apple has incentivized users of Apple Card with money back in the form of what it calls Daily Cash. The company offers higher cash back when using the card with Apple Pay and when making Apple purchases, in essence encouraging users to double down on Apple’s ecosystem. The company also sees itself as one that is reinventing the credit card with family spending controls and the same mobile-based security that it touts with its other products. The card is also financed through Goldman Sachs, further entrenching the feeling of quality and reliability that Apple knows that its customers come to expect from it as a company, it should be no different when it comes to the company’s financial ambitions either.
For all of the platitudes about build quality and premium positioning, Apple is not a dumb company that limits itself to one end of the market. The company creates more value-minded products like the 10-inch iPad, iPhone SE, and Apple Watch SE. As such, its entry into the financial world has to also account for people that may not qualify for an Apple Card or be in a position to spend a lot of money on high-ticket items. This is why the company has unveiled Apple Pay Later.
Apple Pay Later is a buy now pay later service, meaning it allows customers to break up a purchase into 4 payments interest-free over six weeks. There have been many companies that are built on this strategy such as Klarna, AfterPay, Zip, and Affirm. The trouble with these services is that they have to establish partnerships with stores to offer their services, usually only online (there have been some brick-and-mortar retailers that have enabled these services). Apple has circumvented this issue by offering their pay later service into Apple Pay directly (with the iOS 16 update).
By adding Pay Later into Apple Pay, 90% of the retailers in the US that support Apple Pay now support Pay Later by proxy. This addition will normalize payment breakups and also encourage buying higher ticket items at the point of sale. There is also no need to ask the cashier to initiate a buy now pay later transaction, lessening the steps to complete the transaction. This diversifies Apple’s financial services offerings enabling customers to get access to the products they want, and if the company sells a few extra iPhones in the process as a result even better.
Apple’s next big thing is a popular topic of conversation. This is mainly because Apple holds so much mind share in popular culture and the business world. For better or worse, they are tastemakers and drivers of what is accepted as popular. While many have envisioned a new tech category to be the next step, perhaps Apple sees itself as more than just a tech company. They have dabbled in media with Apple Music and Apple TV+ and have also tuned into a force in broadcasting sports as well. Financial tech is not an outrageous leap.
Apple’s moves in finance can only be interpreted as a serious desire to break through that industry. But what is the next step? In my estimation, the logical next step is for Apple to establish itself as a financial technology company by offering banking services along the lines of Varo, Chime, and others. The company has shown itself to be reliable in the space of financial relations with its customers and has an established reputation that should yield some level of interest from people thinking about their next banking solution.
In the grand scheme of things, Apple is always looking to control the experience of their user. To create an ecosystem where all of the elements work well together. In an ideal world, Apple would love for its customers to bank with Apple, use an Apple Card, and pay with Apple Pay, in an Apple Store while purchasing their new iPhone. The final piece of this ecosystem puzzle is to have Apple the financial services company become a reality. And that day may be here sooner than we think.
