The announcement of ‘Apple Pay Later’ was obviously one of the more interesting elements of WWDC this year. But it also shouldn’t have been too surprising. As I wrote over three years ago in a post called The Apple Bank:
I’ve long wondered if Apple wouldn’t have to become a bank eventually. The logic is pretty simple: the iPhone is one of the — if not the — best business of all time. Just another product in the typical Apple mold, no matter how insanely great, is unlikely to match it. Instead, Apple would likely have to look to some of the other biggest industries in the world. Industries like oil, cars, and yes, banking.
To be clear, this isn’t the launch of the Apple Bank (lawyers, rev those lawsuit engines!), but it is a first step in that general direction. Or really, a second, more tangible step, after the launch of Apple Pay. And while the WSJ dismisses that product as not interesting, my instinct continues to be that this is incorrect. While Apple Pay perhaps hasn’t been a rocket out of the gate like some other products, I feel like it has really come into its own over the past year or so. I now see it accepted basically everywhere, and more importantly, used constantly while out and about.
Anyway, this supposed Apple credit card is all about getting better service fees while at the same time increasing the utility of their payment services, with monetary health equations similar to the ones they give us on the physical health side. Makes sense.
What doesn’t make complete sense is the Goldman part of the equation. Beyond the current brand risk, it’s just a weird partnership. But taking a step back, it might make some sense if you view it as similar to the one Apple struck with AT&T (then Cingular) around the initial launch of the iPhone. AT&T needed Apple as much as Apple needed AT&T. And here, Goldman seems to need Apple in an attempt to jumpstart their fledgling “Marcus” banking business aimed at young folk.
This is not only the third step towards the proverbial Apple Bank, it’s the most important yet in that Apple is taking on the risk (and doing the risk assessment) by doing the lending themselves. Off their own balance sheet. From the reporting by AnnaMaria Andriotis:
The tech giant is launching a buy now, pay later offering in the U.S. later this year that will allow consumers that shop with Apple Pay to split purchases into four payments every two weeks. Apple will underwrite the loans and fund them, which also means absorbing losses when borrowers fail to repay. An Apple subsidiary has obtained lending licenses in most states to offer the new payment plans, called Apple Pay Later.
Big technology companies have long eyed finance as a way to deepen their relationships with customers. But most have tapped banking and financial-technology partners to handle the nitty-gritty of vetting customers and dealing with the raft of regulations that surround financial products.
Apple is doing things differently this time, convinced it has the data and technology it needs to approve customers without risking big losses, according to people familiar with the matter. Much like a bank, the tech giant will rely on credit reports and FICO scores to check applicants’ financial standing. But it also plans to use its giant store of Apple ID data for identity verification and fraud prevention, the people said.
That sounds like a bank because it is a bank. Apple is now a bank.¹
¹ Yes, yes, not quite technically yet. Yet.
