The news came from Bloomberg. However, I feel Bloomberg should have done a deeper dive into this information from its sources at Apple or at least ask for clarity on the project. Immediately after the news came out, some fintech stocks dropped. However, I wonder if they should have been the ones to worry about Apple’s encroachment into the financial services market.
Any time Apple moves into a new market, in this case, the financial services market, it takes years for Apple’s impact to be felt. And it is never felt in a jolt at felt throughout the market. It’s more of a roll and before you know it, it’s a big, big wave.
Apple Pay was first introduced 7 years ago in October of 2014. It has taken that long for mobile payment to be ubiquitously accepted. There was a time when many were not sure Apple Pay would have a chance. Even now, Apple Pay is not accepted at the largest retailer in the world, Walmart, and as most gas stations I go to (I rather use Apple Pay than use my card because potential for skimming devices).
In these seven years, there has not be a major change to Apple Pay or new services from Apple except its expanded use with some public transposition systems.
So, how big of an impact will Breakout be? We just have to wait and see. So far, there is no talk about banking. The likely services could be related to the news about hardware subscription that Apple may push out in the near future. And by near future, in the next year or two. And with Apple, it’s never guaranteed that it’s coming until Apple announces it publicly.
Here are the potential services from Breakout:
- Increase Apple Pay. Recently, Apple unveiled Tap to Pay on the iPhone allowing merchants to accept payments. Apple has opened this up to other payment systems. It’s a good move since the government is likely going to be watching this closely for anti-trust and monopolistic practices.
- Apple users can already buy Apple hardware in installments so I’m very curious what value Apple’s hardware subscription will really bring to users. However, Apple could be looking to finance the subscription with its bazillion dollars in the bank. I’m not a financial person so I don’t know how Apple will benefit financially. It will be “selling” hardware and likely bundle services along with the subscription fee. I watched a CNBC segment about this when this was announced and Wall Street seems to like it a lot since it means Apple will have a predictable revenue stream on an annual basis and the dependence on iPhone upgrade cycles will reduce market anxiety. Despite having a market capitalization of nearly three trillion dollars, there those who still think Apple will be bankrupt for some weird reasons.
- The idea that Apple is looking to bring financial services in-house as Bloomberg suggests instead of working out another bank or partner means that Apple is comfortable with disrupting the financial market. It could be a big deal over time. Instead of working with a financing company, Apple will handle everything relating to the subscription - credit checks, lending (see below what else Apple can lend to), fraud and risk analysis, and, of course, payments.
- Apple credit card could be just the next step. Bloomberg has made it clear that current deals and partnerships will continue. Consider Apple Card. Apple works with Goldman Sachs. This is just in the United States. What about the rest of the world? Could Apple Pay and new financial functions serve as Apple’s version of the credit card everywhere else in the world?
- Apple Cash - I currently have less than $50 in my Apple Cash. I really have no idea where that money is sitting other than that it’s there on my iPhone. Like Apple Card, this is only available in the US. Consider possible international expansions. Wow.
- How about banking? Could Breakout involve retail banking? Savings account? CD? Issue debts to Apple users? I’m not hopeful about this. It’s possible but if Apple does get into banking, it will not feel like traditional banking we currently know it as.
- Lending - Apple will mostly allow lending limited to Apple products - iPhones, iPads, Macs, and sales from the Apple Store. Wait, one more thing: Apple Financing for Apple’s own car. And recently, Tesla launched a Tesla subscription. Prior to Breakout, Apple would work with a partner to finance purchase of its hardware. In a couple of years, lending from Apple will be much more mature. And when Apple’s car does hit the market, it will be ready to finance it all on its own.
I’m not suggesting at all that Apple will become your bank. I honestly don’t know if Apple is interested in doing that as we know it. Can you imagine Siri as your bank teller? No way! Siri still has no idea what I am asking it. However, when it comes to getting users to buy or subscribe to its products and services, it makes sense for Apple to control everything from end to end, even when Apple starts sell a car.
So, I think it’s too premature for fintech, Wall Street, and local banks to start packing it in. The markets as those are too low and Apple is not quite ready to scrape the bottom of the barrel for changes to increase its profits. Apple wants to augment its garden, nothing more.