by Dalma Dorko
In recent years, we have seen a growing trend of big tech companies entering the finance industry. From Apple's successful wireless payment technology, Apple Pay, to Facebook's digital currency initiative, Libra (rebranded as Diem), these companies are leveraging their vast user bases and data sets to offer financial products and services to consumers. The benefits of big tech companies entering into finance are clear: they have the resources, technology, and customer base to potentially disrupt the traditional banking system. For consumers, this could mean more innovative and convenient financial products and services, as well as increased competition among financial institutions. However, there are also concerns about the concentration of power in the hands of a few large tech companies, as well as potential risks around data privacy and security. Regulators around the world are closely monitoring these developments and working to ensure that consumer protection is maintained. In this post we will explore Apple's expansion into finance and ask whether it should be considered a tech company or a financial institution.
Apple's first wireless payment technology, Apple Pay, introduced in 2014, has been one of its most successful innovations in finance. Five years later, in 2019, Apple and Goldman Sachs announced a new collaboration to launch a credit card named "Apple Card." This collaboration was aimed at creating a new kind of its kind that would be simpler, more convenient, and more transparent than traditional credit cards. The Apple Card was immediately well-received by consumers. The card is designed to be used primarily through the Apple Wallet app on an iPhone, and it offers a range of benefits, including cashback rewards for purchases made with it. The card also features a simple design, with no numbers or CVV codes on the physical card, intended to make it more secure. Behind the scenes, the Apple Card is powered by Goldman Sachs, which provided the banking infrastructure for the card. This was a significant move for Goldman Sachs, which had traditionally focused on investment banking and trading, rather than consumer finance. Goldman Sachs saw the Apple Card as an opportunity to expand into consumer finance, establish itself as a player in the industry, as well as allow Apple to become more involved in finance. [1]
Apple highlights privacy and security as the most innovative features of the Apple Card. The card is designed to offer users more control over their financial data and transactions. Apple Pay cryptically transforms the card number and other details into a unique card identity, which is kept in Apple's "secure element" for added security. In addition to the unique identifier and the one-time security code, Apple Pay requires biometric authentication via FaceID or TouchID. By using this method, one's real credit card number is never transmitted, which means a fraudster would need to steal a person's face or fingerprint in order to steal the information of their credit card. These features, however, already exist when one adds an „average” credit card of a traditional bank to their Apple Wallet. [2] [3]
Overall, the collaboration between Apple and Goldman Sachs was seen as a success. The Apple Card was well-received by consumers, and it helped Goldman Sachs establish itself as a player in the consumer finance market. Additionally, the collaboration between the two companies helped to showcase the potential for tech and finance companies to work together to create innovative products and services. [4] [5]
In addition to the Apple Card, Apple has also introduced other products that are aimed at providing users with greater control over their finances. One of these is the Apple Cash, which is a virtual debit card that allows users to send and receive money through the Messages or Wallet app. Another related service offered by Apple is the Apple Cash/Card Family feature, which allows parents to set up Apple Cash accounts for their children. Parents can control the spending limits on their children's accounts and monitor their transactions. Additionally, Apple has recently launched "Pay Later" for Apple Pay, which allows users to split purchases into four interest-free payments over time. [6] [7] [8]
Apple has also introduced a high-yield savings account through its partnership with Goldman Sachs. This account offers a competitive interest rate and no fees, and it is designed to work seamlessly with the Apple Card and Apple Pay. It offers an interest rate of 4.15% per year, which is more than 10 times the national average rate for savings accounts in the US and the maximum balance is $250,000. The deposits will be held with Goldman Sachs, which has access to the Federal Deposit Insurance Corporation’s insurance. In order to prevent their customers from transferring their funds to higher-yielding products, the more established banks are now under pressure to offer better savings rates after customers have already withdrawn about $800 billion from US commercial banks since March 2022. [8] [9] [10]
Doesn't Apple seem more and more like a bank when you consider all the services and products it provides to its users? As Apple continues to expand into financial and payment services, it has gained a substantial advantage over its competitors. A key advantage that Apple has over most banks is its reputation for consumer trust. Overall, the additional financial products and features offered by Apple demonstrate the company's commitment to providing its users with innovative and convenient ways to manage their finances. At the moment, Apple offers these services in partnership with financial institutions such as Goldman Sachs, but experts believe that, given Apple's history of partnering with others, its ultimate goal in finance is to go it alone when it makes sense for the company. [10] [11]
Although there are certain industry experts who do not perceive Apple as an existential threat, they rather view its steps as an opportunity for Apple to expand the iPhone's influence and keep its users within the ecosystem, instead of competing with financial institutions. While it is increasingly resembling a bank, its real strength is still in hardware sales and non-banking services. [10] [11]
[1] „Goldman Sachs, Apple Team Up on New Credit Card”. The Wall Street Journal. Retrieved May 9, 2023, from https://www.wsj.com/articles/goldman-sachs-apple-team-up-on-new-credit-card-1525966214
[2] „The Apple Card's best feature is its privacy". Yahoo! Finance. Retrieved May 9, 2023, from https://finance.yahoo.com/news/apple-card-privacy-security-195046464.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALsbDypYTvyQ1K3vfi2msTF1Of7pzuQdbegP3tqlZvzrynVwFImRxoJ155-2YK9pBy5MhgucjYjzdAFsuwXvfjcJyfdqgisYQqhwvgyssgTeBK_Bfq-k9bpqI1zP4Zbr8g7v4oojdqm0dVKpWaLmpuSSJ9TpwYwNXdsAN7BgsKhf
[3] „Want Apple Card’s Security Benefits? Just Use Apple Pay” The Wired. Retrieved May 9, 2023, from https://www.wired.com/story/apple-card-security-benefits-use-apple-pay/
[4] "Apple Card". Apple. Retrieved May 9, 2023, from https://www.apple.com/apple-card/
[5] „Goldman Sachs Partners with Apple on a Game-Changing Credit Card” Goldman Sachs. Retrieved May 9, 2023, from https://www.goldmansachs.com/our-firm/history/moments/2019-apple-card.html
[6] „Apple Cash Card” Apple. Retrieved May 9, 2023, from https://www.apple.com/apple-cash/
[7] „Apple introduces Apple Card Family, enabling people to share Apple Card and build credit together” Apple. Retrieved May 9, 2023, from https://www.apple.com/newsroom/2021/04/apple-introduces-apple-card-family-enabling-people-to-share-apple-card-and-build-credit-together/
[8] „Apple Account Card vs Apple Cash: What’s the difference?” Pocketnow. Retrieved 9 May, 2023, from https://pocketnow.com/apple-account-card-vs-apple-cash/
[9] "Apple Cash ". Apple. Retrieved May 9, 2023, from https://www.apple.com/apple-cash/
[10] „Apple and Goldman Sachs offer US savings account with 4.15% annual interest” Financial Times. Retrieved May 9, 2023, from https://www.ft.com/content/bf566eee-9795-4bbb-9494-d55e529316b4
[11] „Will Apple take a big bite out of the banks?” Financial Times. Retrieved May 9, 2023, from https://www.ft.com/content/fda76c42-0540-48a1-b1d9-259e1c2d6c3a
