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Here's why Apple wants to make its own financial services

By Roland Udvarlaki March 31, 2022, 10:04 am
Apple financial services Source: Pocketnow

A new report claims that Apple is developing its own payment processing technology and infrastructure to develop financial products and services. The new payment processing service could offer Apple more independence from third-party partners and leverage its influence to provide better rates and more beneficial payment solutions.

Bloomberg’s Mark Gurman reports that Apple is developing its own payment processing service. The news isn’t entirely new, and we’ve seen signs indicating that Apple may be up to introducing Apple Card in the UK, and in other regions globally, but a complete financial service would provide the company the benefits that we haven’t seen before from a technology giant.

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According to people familiar with Apple’s plans, the new financial service includes payment processing, risk assessment for lending, fraud analysis, credit checks, and additional customer-service functions to handle complaints and inquiries. The report states that Apple wants to offer the service for future products rather than current devices in Apple’s lineup, which makes sense. It takes a lot of work to get such a financial institution up and running, even if we’re talking about a trillion-dollar company.

Apple Card Source: Apple

The project is initially codenamed as “Breakout” internally, hinting that Apple wants to break away from other financial institutions and systems and become its own boss while relying on industry standards and policies. It’s worth noting that Apple is currently using the CoreCard as its processor to oversee transactions, and bank details. The Apple Card relies on Goldman Sachs for lending, customer service, and credit checks, and Apple is expected to remain a partner with them in the foreseeable future.

The financial business is completely different from the usual enterprise, business, and consumer technology business, and Meta (formerly known as Facebook), and Google both scaled back their projects in recent years after coming across challenges. Both platforms offer their users the option to pay for services and make transactions (Send money to friends and family on Facebook, and Google Pay as key examples), but they’re not as versatile as services offered by financial services that offer cash back and other benefits.

Financial services allow users to purchase expensive Apple products in installment plans that earn great revenue from the interest and transaction fees. Apple has taken multiple steps in the past decade to control the entire process, from design to manufacturing, and it’s not surprising to see that Apple also wants to control the way it lets users pay for its physical devices. Apple is also being investigated for monopolistic practices. It only recently announced that it would finally allow music, video, and reader applications to include a single link to external sites. When a user signs up using the external link, Apple will not be able to receive its 30% fee from the App Store. However, the company has multiple policies to prevent that and still request a cut from popular services such as Spotify.

There are multiple signs that prove that this report is credible. First, it’s the fact that Apple acquired a UK banking startup for a deal that’s estimated to be worth around $150 million, which will reportedly help the company oversee payment processing, offer help with risk management, transfer money and deal with fees. Bloomberg also reported earlier last year that Apple might be working on an “Apple Pay Later” service, indicating that the company may want to use its own payment processor to deal with transactions and offer a loan to customers to pay for Apple products. The “Apple Pay Later” feature was compared to PayPal’s interest-free installment system that allows consumers to finance devices above a specific price over 24-months, with 0% interest fees (if paid on time).

If Apple goes ahead with its plan, we could see Apple offer even more enticing deals to allow customers to pay for its premium products. It would allow Apple to control the entire planning, designing, producing, and handling of payments. A payment processing service could potentially also wave some fees and reduce its 30% cut from App Store developers and companies, although that is unlikely to change, unless a currently active court case changes things in the future.

At its current stage, it’s unclear when Apple might be ready to introduce its financial service and allow customers to take advantage of the new services, but if all goes according to plan, we could see it soon, within a few years.

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