It was reported first by Bloomberg, that Apple is developing its own payment processing system and infrastructure to support future financial products. Internally, the project has been called "Breakout", emphasizing the concept of separating from the existing financial system - in this case reducing Apple’s reliance on outside partners. Financial tasks such as payment processing, risk assessment for lending, fraud analysis, credit checks, and additional customer-service functions such as the handling of disputes should be made in-house. The push will transform the company into a stronger financial force, but also support Apple's possible expansion into new countries. Apple Pay is available in more than 70 countries, but services such as peer-to-peer payments, the Apple Card, and the Apple Cash Card remain U.S.-only. Partners such as CoreCard and Green Dot are U.S.-focused, restricting Apple's growth potential.
The first product that relies on the new system is the “buy now, pay later” service called “Apple Pay Later”. Apple Pay Later is a new feature for Apple Pay that lets users pay for purchases in four installments over time without interest. Installments can be paid over a period of six weeks, with the first payment being paid upfront and the other three every two weeks. Payments are managed in the Wallet app, and users can pay them in advance if they want. Users may sign up for Apple Pay Later while checking out with Apple Pay or in Wallet. Apple Pay Later is available online or in-app and is intended not only for in-house online stores but should work wherever Apple Pay is accepted online or in apps with the Mastercard network.
Apple is still relying on Goldman Sachs for accessing the Mastercard network since Apple has no license to issue payment credentials directly. But the underwriting and lending part is handled by Apple Financing LLC, Apple´s new subsidiary licensed to provide lending services. As a result of this setup, Apple will be able to earn interchange fees from each transaction, as well as give the company more control over data and help accelerate the international expansion of its financial products. Despite not disclosing the financing mechanism, Apple is well-positioned to lend from its own balance sheet, especially for short-term loans (March 2022 net cash $73bn). Most Apple customers tend to have higher incomes than other tech customers, making them less of a lending risk. Also, Apple can use data on how long a customer owned an iPhone or how often a customer buys apps in the app store to help determine if the customer is in good standing.
It’s important to mention that in March 2022 Apple quietly acquired a London-based fintech startup Credit Kudos for $150 million. Credit Kudos uses open banking to help businesses to make lending decisions. The fintech startup develops software that uses consumer transaction data to build highly accurate and transparent credit score cards and affordability metrics. This enables lenders to provide credit to borrowers, who would have previously been declined or overlooked. Credit Kudos replaces traditional, narrow methods of credit assessment which are expected to be used when offering the new Pay Later service.
While the cofounder of "buy now, pay later" unicorn Affirm, Max Levchin was "genuinely excited" about Apple's decision to enter the same market despite the threat it may pose, the CEO of Klarna expressed his feelings via Twitter:
There is no doubt that the arrival of a Big Tech company with a preexisting payments infrastructure will mean more competition for a sector already facing recession, defaults, and an increase in regulations.
According to Forbes, Apple’s penetration and control in the consumer market are incredibly strong, but until recently, it’s had little presence on the merchant side. Apple realizes that it needs to pursue a platform business model to protect and grow its market position.
In March 2021 fintech expert Ron Shevlin wrote in one of his articles: “Credit card issuers compete on rewards (who offers the most, tailored to cardholders’ preferences) or interest rate (for cardholders who typically revolve card balances). Apple’s strategy is different: Apple competes on the ecosystem.”
As time passes, this becomes more and more apparent. Apple has been banking on a platform approach to help spur growth for Apple Pay and Apple Card better (and perhaps even faster) than current marketing methods. And at this time Apple did not see a need to apply for a banking license.
The Latest:
📍 N26 partners with Stripe for payments
N26 is teaming up with Stripe to power its payments and make onboarding easier. N26 was using Stripe´s payments technology to enhance crucial parts of its business, such as account top-ups through credit cards, debit cards, and digital wallets from directly within the app. With the help of Stripe´s documentation and API N26 managed to build their new pay-in flow in just 6 weeks. 👉🏻 More here
📍 Revolut partners Tink for European payments
At the heart of the collaboration is Tink's Payment Initiation Services (PIS) technology, which allows users to pay directly from their bank account rather than using their third-party debit or credit card like Visa or Mastercard. PIS enables users to connect to the bank account they want to transfer money from and instantaneously authorize and complete the payment without leaving the Revolut app. 👉🏻 More here
📍 PayPal adds new crypto services including transfers to other wallets
The payment services giant will allow users to turn crypto into fiat for use at any one of 35 million merchant accounts. Some PayPal customers can now move their cryptocurrencies such as Bitcoin from their accounts to external wallets and exchanges. The new service means that PayPal customers can also send crypto to other PayPal users in seconds with no fees or network charges. 👉🏻 More here
📍 Société Générale backs Czech fintech Lemonero
The AI-driven lending tool has raised €12m in one of the biggest ever seed rounds in the Czech Republic. Lemonero is tapping into a growing market of embedded finance solutions, which could be worth $3.6tn by 2030. Prague-based Lemonero will use the investment for expanding into western and eastern European regions and developing new products for cash flow management. 👉🏻 More here
📍 Bunq acquires group expenses app Tricount
Dutch challenger Bunq becomes EU’s second largest neobank with Tricount acquisition. The Belgian fintech Tricount is a group expense management app with a user base of 5.4m users. The free app (with ads) allows users to register and balance their expenses during activities with friends. Tricount offers additional options, like adding expenses in multiple currencies or splitting expenses unevenly. The premium version unlocks features, such as CSV exports and statistics. Bunq´s split payment feature is designed for a group of people who all use Bunq, while Tricount is a bank agnostic solution. 👉🏻 More here
📍 Western Union partners with German fintech Mambu for new digital banking platform in Europe
Western Union has integrated Mambu's cloud banking solution into its digital banking app, called WU+, allowing customers to conduct international money transfers, manage their digital wallets, and view transactions as needed. 👉🏻 More here
📍 New Stripe Tool Aims to Improve EU Payment Authentications
Stripe now allows its customers to authenticate purchases inside a checkout flow. The first card issuer to use the feature is the U.K. FinTech Wise. After the EU’s recent rollout of its Strong Customer Authentication (SCA) regulation, the company said, its delegated authentication feature embeds biometric authentication into the merchant’s checkout, moving responsibility for authenticating transactions from card issuers to Stripe. Meanwhile, Stripe “dynamically adapts two-factor authentication methods to suit a purchaser’s preferences and device capabilities.” That means customers aren’t directed from the checkout page mid-purchase, while merchants are still protected against payment fraud. 👉🏻 More here
Summer reading 📚
And before you leave for a well-deserved vacation, here are some book recommendations for you🤓
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The Road To Apple Bank?
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Photo by blocks on Unsplash
It was reported first by Bloomberg, that Apple is developing its own payment processing system and infrastructure to support future financial products. Internally, the project has been called "Breakout", emphasizing the concept of separating from the existing financial system - in this case reducing Apple’s reliance on outside partners. Financial tasks such as payment processing, risk assessment for lending, fraud analysis, credit checks, and additional customer-service functions such as the handling of disputes should be made in-house. The push will transform the company into a stronger financial force, but also support Apple's possible expansion into new countries. Apple Pay is available in more than 70 countries, but services such as peer-to-peer payments, the Apple Card, and the Apple Cash Card remain U.S.-only. Partners such as CoreCard and Green Dot are U.S.-focused, restricting Apple's growth potential.
The first product that relies on the new system is the “buy now, pay later” service called “Apple Pay Later”. Apple Pay Later is a new feature for Apple Pay that lets users pay for purchases in four installments over time without interest. Installments can be paid over a period of six weeks, with the first payment being paid upfront and the other three every two weeks. Payments are managed in the Wallet app, and users can pay them in advance if they want. Users may sign up for Apple Pay Later while checking out with Apple Pay or in Wallet. Apple Pay Later is available online or in-app and is intended not only for in-house online stores but should work wherever Apple Pay is accepted online or in apps with the Mastercard network.
Apple is still relying on Goldman Sachs for accessing the Mastercard network since Apple has no license to issue payment credentials directly. But the underwriting and lending part is handled by Apple Financing LLC, Apple´s new subsidiary licensed to provide lending services. As a result of this setup, Apple will be able to earn interchange fees from each transaction, as well as give the company more control over data and help accelerate the international expansion of its financial products. Despite not disclosing the financing mechanism, Apple is well-positioned to lend from its own balance sheet, especially for short-term loans (March 2022 net cash $73bn). Most Apple customers tend to have higher incomes than other tech customers, making them less of a lending risk. Also, Apple can use data on how long a customer owned an iPhone or how often a customer buys apps in the app store to help determine if the customer is in good standing.
It’s important to mention that in March 2022 Apple quietly acquired a London-based fintech startup Credit Kudos for $150 million. Credit Kudos uses open banking to help businesses to make lending decisions. The fintech startup develops software that uses consumer transaction data to build highly accurate and transparent credit score cards and affordability metrics. This enables lenders to provide credit to borrowers, who would have previously been declined or overlooked. Credit Kudos replaces traditional, narrow methods of credit assessment which are expected to be used when offering the new Pay Later service.
While the cofounder of "buy now, pay later" unicorn Affirm, Max Levchin was "genuinely excited" about Apple's decision to enter the same market despite the threat it may pose, the CEO of Klarna expressed his feelings via Twitter:
There is no doubt that the arrival of a Big Tech company with a preexisting payments infrastructure will mean more competition for a sector already facing recession, defaults, and an increase in regulations.
According to Forbes, Apple’s penetration and control in the consumer market are incredibly strong, but until recently, it’s had little presence on the merchant side. Apple realizes that it needs to pursue a platform business model to protect and grow its market position.
In March 2021 fintech expert Ron Shevlin wrote in one of his articles: “Credit card issuers compete on rewards (who offers the most, tailored to cardholders’ preferences) or interest rate (for cardholders who typically revolve card balances). Apple’s strategy is different: Apple competes on the ecosystem.”
As time passes, this becomes more and more apparent. Apple has been banking on a platform approach to help spur growth for Apple Pay and Apple Card better (and perhaps even faster) than current marketing methods. And at this time Apple did not see a need to apply for a banking license.
The Latest:
📍 N26 partners with Stripe for payments
N26 is teaming up with Stripe to power its payments and make onboarding easier. N26 was using Stripe´s payments technology to enhance crucial parts of its business, such as account top-ups through credit cards, debit cards, and digital wallets from directly within the app. With the help of Stripe´s documentation and API N26 managed to build their new pay-in flow in just 6 weeks. 👉🏻 More here
📍 Revolut partners Tink for European payments
At the heart of the collaboration is Tink's Payment Initiation Services (PIS) technology, which allows users to pay directly from their bank account rather than using their third-party debit or credit card like Visa or Mastercard. PIS enables users to connect to the bank account they want to transfer money from and instantaneously authorize and complete the payment without leaving the Revolut app. 👉🏻 More here
📍 PayPal adds new crypto services including transfers to other wallets
The payment services giant will allow users to turn crypto into fiat for use at any one of 35 million merchant accounts. Some PayPal customers can now move their cryptocurrencies such as Bitcoin from their accounts to external wallets and exchanges. The new service means that PayPal customers can also send crypto to other PayPal users in seconds with no fees or network charges. 👉🏻 More here
📍 Société Générale backs Czech fintech Lemonero
The AI-driven lending tool has raised €12m in one of the biggest ever seed rounds in the Czech Republic. Lemonero is tapping into a growing market of embedded finance solutions, which could be worth $3.6tn by 2030. Prague-based Lemonero will use the investment for expanding into western and eastern European regions and developing new products for cash flow management. 👉🏻 More here
📍 Bunq acquires group expenses app Tricount
Dutch challenger Bunq becomes EU’s second largest neobank with Tricount acquisition. The Belgian fintech Tricount is a group expense management app with a user base of 5.4m users. The free app (with ads) allows users to register and balance their expenses during activities with friends. Tricount offers additional options, like adding expenses in multiple currencies or splitting expenses unevenly. The premium version unlocks features, such as CSV exports and statistics. Bunq´s split payment feature is designed for a group of people who all use Bunq, while Tricount is a bank agnostic solution. 👉🏻 More here
📍 Western Union partners with German fintech Mambu for new digital banking platform in Europe
Western Union has integrated Mambu's cloud banking solution into its digital banking app, called WU+, allowing customers to conduct international money transfers, manage their digital wallets, and view transactions as needed. 👉🏻 More here
📍 New Stripe Tool Aims to Improve EU Payment Authentications
Stripe now allows its customers to authenticate purchases inside a checkout flow. The first card issuer to use the feature is the U.K. FinTech Wise. After the EU’s recent rollout of its Strong Customer Authentication (SCA) regulation, the company said, its delegated authentication feature embeds biometric authentication into the merchant’s checkout, moving responsibility for authenticating transactions from card issuers to Stripe. Meanwhile, Stripe “dynamically adapts two-factor authentication methods to suit a purchaser’s preferences and device capabilities.” That means customers aren’t directed from the checkout page mid-purchase, while merchants are still protected against payment fraud. 👉🏻 More here
Summer reading 📚
And before you leave for a well-deserved vacation, here are some book recommendations for you🤓
Thanks for reading Beyond George! Subscribe for free to receive new posts and support my work.
Thank you for reading Beyond George. This post is public so feel free to share it.
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