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Apple CEO Tim Cook. (AP photo / Dami and Burganes)

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Observation from FinTech SNAR

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Bloomberg reports that Apple has launched an initiative coded as “Breakout” to introduce financial services features such as payment processing, risk and fraud analysis, credit checks, and customer service internally. According to the article:

“With this push, the company will become a bigger force in financial services and will build a lineup that includes credit cards, peer-to-peer payments, Wallet apps, and a mechanism for sellers to accept credit cards from the iPhone. We are also working on a unique hardware subscription service and post-purchase payment capabilities for Apple Pay transactions.“

It helps explain why Apple acquired Credit Kudos, a UK-based open banking company. The company helps streamline lending and improve underwriting operations.

But why is there a wide range of impetus to bring financial functions such as payment processing and customer service functions into the company? At Breakout, Tom Noyes, CEO and founder of Acc3pt and a longtime insider in the payments industry, speculates that Apple wants to:

• Own a payment supply chain and minimize the number of external vendors and partners exposed to consumer data.
• Buy Now, Launch the Buy Now, Pay Later (BNPL) feature and get your Apple Card up and running in different markets right away.
• Reduce network costs and improve integration into local schemes (see, for example, Apple Pay India’s UPI integration).
• Improve the consumer experience by deploying Apple Cash in all markets, connecting to local schemes, and enabling P2P payments on your Apple Phone.
• Expand iPhone sales (including payments and financing) to demographics and regions with poor consumer credit capabilities.

Apple catches up with commerce platform war

Bloomberg describes the source as “people who have knowledge of the problem … people who have asked not to be identified because the plan is not publicly available.” Ha! Apple knows who these “people” are, otherwise they will fire immediately I want These plans have been announced.

The plan was leaked as Apple indicated to the market its intention to compete with commerce platforms such as Square, PayPal, Google and Klarna.

Apple’s penetration and control in the consumer market is incredibly strong, but until recently, Apple was barely present on the merchant side. Apple recognizes that it needs to pursue a platform business model in order to maintain and grow its position in the market.

Apple’s double-sided ecosystem

SourceL WhiteSight

Other commerce platforms have been aggressively building double-sided capabilities for some time. Recent efforts are as follows.

• A partnership between Google and Square. In June 2021, Square announced a partnership with Google’s Merchant Center to allow Square sellers to reach new customers through Google’s direct product list.

Square double-sided ecosystem

Source: Square

• Launch of Stripe Treasury by Stripe. In late 2020, Stripe announced the Stripe Treasury. As a result, 1) in partnership with Shopify, we created Shopify Balance, a business checking account dedicated to independent businesses and entrepreneurs, and 2) built a banking partner network that includes Goldman Sachs and Evolve Bank. A US partner that enables standardized access to banking functions via API.
• Acquisition of Honey by PayPal. With the 2019 acquisition, PayPal is now able to offer consumers more targeted and personalized promotions as a way to win new businesses and increase sales. More importantly, it gave payment companies the opportunity to offer these features to their merchant partners.

PayPal’s commerce platform

Source: PayPal

• Klarna’s 10-year ecosystem growth.. Don’t think of Klarna as just a “buy now and pay later” company. Through acquisitions and investments, the company is becoming a trading powerhouse.

Klarna’s commerce ecosystem

Source: WhiteSight

Disadvantages of Apple payments

In an article in May 2021 Apple Card grows to 6.4 million cardholders thanks to womenI wrote:

“Credit card issuers compete for rewards (which offer the most to the cardholder’s tastes) or interest rates (usually for cardholders who rotate their card balances). Apple’s strategy is different. increase: Apple is competing in the ecosystem.“

This is becoming true day by day. However, Apple has some payment shortcomings that can affect the acceleration of the Breakout initiative.

• The use of Apple Pay has been delayed. According to a consumer survey I submitted to Cornerstone Advisors in the first quarter of 2022, about half (52%) of consumers with checking accounts and smartphones make mobile personal (P2P) payments. Apple Pay’s share of this segment is 26%, which is in contrast to CashApp’s 43% share and PayPal’s 76% penetration.
• Apple Card growth is anemic. Growth slowed in 2021 after Apple Card owners doubled in 2020. According to a Cornerstone survey, the number of consumers with Apple Cards increased from 6.4 million in early 2021 to just 6.7 million in early 2022. In 2021.

Fintech Snark Tank Take: Apple is confident that the platform approach will help stimulate Apple Pay and Apple Card growth better (and perhaps even faster) than the current marketing approach.

Revenge of payment geeks

Not long ago, I was warned by a colleague who had worked in a bank for many years.

“Avoid payers. They’re really smart, but weird and geeky.”

You can decide for yourself if she was right, but payments are becoming a more important competitive differentiator.

Marketing students learn about the “Four Ps of Marketing”: Products, Locations, Prices, and Promotions. According to Professor Philip Kotler of Northwestern University, the creator of 4 Ps:

“The marketing mix is ​​a set of controllable variables that a company can use to influence a buyer’s reaction. The four variables help a company develop its own selling points and brand image.”

Payment has become an important element of a sales offer and should be considered the fifth P in marketing.

Marketers can influence a consumer’s purchase potential if they offer different payment terms (for example, spread payments for purchases over a period of time) or provide credit before or during the shopping process. ..

Personalizing payment terms is another way for merchants to influence consumers’ product and provider choices. It’s the commerce platform that has the data, analytics, and connectivity to do this.

Apple, Square, Klarna, and Shopify know that reducing friction and costs in the payment process impacts buying behavior. As a result, having a good payment experience is important for building a commerce platform for the 2020s.

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