Apple is trying to take a slice of the financial-technology industry. Affirm and Jack Dorsey’s Block (SQ.N ) should be considered high-risk. However, lenders like Goldman Sachs have less to worry about.
Bloomberg reported Wednesday that the $2.9 trillion iPhone manufacturer is expanding its financial-services infrastructure as well as increasing consumer credit. This includes bringing in a variety of tools, such as credit risk assessment and payment processing, within the company. Cook will also launch a “buy now and pay later” product, which allows consumers to spread out the cost of purchases by paying in installments.
Apple’s financial-technology suppliers are most at risk. On Wednesday, CoreCard and Green Dot shares, which are the systems that underpin Apple’s credit card offering and peer-to-peer payments, dropped by 12% and respectively 5%. This is a reasonable reaction considering Cook seems determined to control his fintech infrastructure. Credit Kudos was a UK startup that Cook recently purchased. This technology could enable Apple to augment traditional credit checks by gaining access to borrowers’ bank-account histories.
Cook’s expansion of consumer credit should also concern pay-later companies like Klarna, $13 billion Affirm, and Afterpay (which Block purchased for $29 billion). Apple Pay is used by nearly 50 million U.S. customers, to eMarketer. This gives it a strong base from which to launch a payment-by-installment product. Cook recently announced a new service that allows U.S. merchants the ability to accept payments directly from their customers using an iPhone. This is a direct threat for Block’s core business.
The more difficult question is whether banks such as JPMorgan, Goldman Sachs, and Bank of America should be worried. Bloomberg reported that Apple could fund smaller, pay-later loans with its own balance sheet instead of using a partner like Goldman.
It’s difficult to imagine Cook eliminating all lenders. Apple has huge financial resources: at the end of 2021, it had $203 trillion in cash and marketable securities. But that’s a small amount compared to the balance sheets of large U.S. banks, which can easily reach the trillions. Large-scale consumer lending isn’t profitable enough to justify all the regulatory headaches. After removing intangible assets, Barclays’ consumer, card and payments business has had an average return of equity of 16% every year since 2014. According to Refinitiv estimates, Apple’s ROE will surpass 100% this year. Cook and the chief executives of banks can probably get along.