It is worth noting that Apple’s recent partnership with Goldman Sachs (its most ambitious disruption of the finance world yet) is not the first time that they have shown interest in this space. In 2014, they launched Apple Pay, which has now come to revolutionise the way that around half a billion people pay for goods and services (so successful, in fact, that the EU opened an antitrust investigation against Apple Pay in 2022, as aspiring lawyers in the competition law space may be keen to investigate further).
In 2019, Apple were busy launching Apple Card alongside Goldman Sachs, which they promoted as being the most secure credit card on the market. This was mainly because actual card details were not printed on the card and instead securely encrypted on your Apple device. Other banks like Chase UK have since followed this idea. They also offered a generous 3% cashback deal for their new customers.
While these earlier projects showed an interest in the financial services space, Apple’s 2023 projects have demonstrated a genuine interest in disrupting the entire industry. First, Apple launched their ‘Buy Now, Pay Later’ service earlier this year. This service is similar to already-popular competitors such as Klarna, which allows customers to spread the cost of a purchase over a period of time (usually weeks or months). While coming under fire for tempting more and more consumers into spending beyond their means (and therefore increasing personal debt), these services have remained incredibly popular. 16% of adults now use such services, for instance.
The interesting point about Apple’s ‘Buy Now, Pay Later’ service is the fact that they are lending their own money – not just putting their own name on something essentially being run elsewhere. In response, JP Morgan Chase CEO Jamie Dimon has stated: ‘if you move money, hold money, leverage money, lend money – that’s a bank’. Of course, Apple is not being regulated as a bank, though – and so it doesn’t have insured deposits by itself.
The most recent development has arguably been its most significant. In April 2023, Apple debuted its savings account. The average US savings account offers interest around 0.5% – Apple are offering 4.15% annual returns to their customers. Their relationship with Goldman Sachs has been reignited here – the customer deposits are actually being held with the bank (also known as Marcus in the personal banking space), and so the money will be FDIC insured (something customers are obviously very conscious of at the moment considering recent bank collapses). While Apple are not yet able to challenge the big banks directly in this manner (hence the relationship with Goldman Sachs), many analysts are predicting that Apple will start to compete at the highest level within the next 5 or 10 years.
Will that actually be possible? Here’s a few reasons why Apple is likely to pose a genuine threat to the existing market share of traditional banks.
The number one advantage that Apple holds over traditional banks is their access to consumers. Around 1.36 billion people own iPhones. And everyone using an iPhone is constantly prompted to engage with services such as Apple Pay. American Express CEO Stephen Squeri admitted recently that Apple’s ‘phenomenal’ relationship with potential customers is something that makes him ‘paranoid’ about the development of their financial strength. Banks simply don’t have the hardware in people’s homes (or more accurately in their pockets – on a screen they’re checking every few minutes) to push their products in the same way that Apple do.
This access to consumers also means that Apple has huge amounts of data on its users (and thus potential banking customers). In the modern world of business, vast quantities of data are seen almost as a shortcut to success. Apple will likely be able to leverage this to get closer to their customers than any bank has ever been able to before.
Apple has a very strong brand reputation, consistently ranking at (or very close to) the top for the most trusted or admired brands in the world. Banks rarely reach anywhere near those heights on the rankings. While the Apple savings account may be (to some extent) a flashy name on a Goldman Sachs product, that’s still enough to draw many consumers in.
And it’s not just that Apple’s reputation is strong – in recent months, consumer trust in banks has plummeted following the collapse of SVB (triggering what some are now labelling a banking crisis) and now Credit Suisse (technically merged with UBS, but essentially having still come tumbling down). Consumers are looking for a name that they can trust with their money – Apple has that trust (albeit in a different industry, but that may not be massively important) in a way that most banks simply don’t.
Throughout its history, Apple has been known primarily for innovation. Steve Jobs’ now-infamous speech unveiling the first ever iPhone is widely used to represent the epitome of innovation. The MacBook was similarly ground-breaking when it launched. Subsequent pieces of technology like Touch ID and Face ID have similarly impressed across the board.
To make all of this possible, Apple hire and keep only the top tier of talent – the same tier which is most likely to provide innovative solutions to consumer problems. It would not be unreasonable to say that Apple Pay provided a genuinely massive advancement for consumers – no longer needing to even have their wallet with them to pay for goods in a shop, for instance. If Apple can maintain this same level of innovation and utilise it within the financial services industry (which early indicators suggest it will), then more traditional financial services providers are at an increasing risk of falling behind the times.
We’re talking about a huge company here. Their revenue last year touched almost $400 billion – American Express didn’t touch $60 billion. The huge amount of capital Apple has available means that it can invest heavily in its people (as already suggested, driving innovation), but also take greater yet still calculated risks on new services and products. Being this big means that you can afford to fail in certain areas, which provides the tech giant with an innate advantage when trying to disrupt a new sector.
In short, Apple’s recent push into the financial services industry is the culmination of years of interest, although now seems to be more aggressive than ever. The banking industry in particular has been associated with a sluggish attitude towards innovation, a lack of consumer trust, and a weak relationship with its customers. These are the same areas in which Apple excels. Major disruption is likely to follow.
By Declan Peters
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