When Apple becomes a neo-bank

[AVIS D’EXPERT] Between its mobile payment system, the acquisition of a company specializing in the rating of borrowers and the launch of a split payment offer, Apple is increasingly competing with neo-banks. Decryption with our expert Guillaume Almeras, founder of the monitoring and advice site Score Advisor.

For years, when Facebook tried to launch its currency, Google offered its mobile payment system or Apple launched a credit card, it was announced that Big Tech would irremediably turn into banks and ruin financial institutions. classics. Yet this time around, as Apple rolls out its own split payment system (announced months ago), commentators tend to agree that, no, that won’t make Apple a bank.

This is probably mainly due to the fact that current banking developments remain poorly understood. Because, of course, Apple is not going to become a bank in the classic sense – and we have, in our previous column, underlined that faced with the threat of new players on its market, JP Morgan Chase, the first world bank, has rightly chosen to cling to the most classic model of retail banking.

However, there can be no mistake, Apple, which already offers means of payment, will distribute credits well, without relying on an existing bank and while setting up an innovative credit support system. Apple will thus compete directly with a number of neo-banks, with means which they are far from being able to dispose of.

Credit risk management

At this stage, however, the announcement could almost go unnoticed: with IOS 16, the new version of the iPhone’s operating system, its users will have (only in the United States for the moment) an option split payment in Apple Pay. This option, Apple Pay Later, will allow them to spread the payment of their purchases in four installments over six weeks, without paying any fees or interest.

Nothing more was specified. Will no fees actually be charged? What will businesses that benefit from the payment facility pay? What penalties will be applied in the event of non-payment of the installments? Will the system be extended elsewhere than in the United States?

But the important thing is not there. Nor even really in the fact that Apple will manage these credits without relying on a financial institution such as Goldman Sachs, which had been selected for the launch of the credit card associated with Apple Pay. Everything will be managed by the subsidiary Apple Financing LLC, including – and this is the most decisive – the risks associated with credits.

We reported it in a previous column: Apple got into borrower rating. Therefore, benefiting from the split payment option of Apple Pay can only be done according to a pre-established ceiling for each user (with also, it seems, a ceiling of 1000 dollars per transaction). Apple thus copies the major Chinese internet players. It will begin to mobilize the immense mass of data it has on its users to judge their repayment capacities, without them even having to apply for credit.

Use the group’s plethoric cash

It’s a revolution! Not only because Apple thus claims to be able to dispense with the expertise of banks in terms of borrower ratings, but because a brand new support for credit is offered, based on a scoring prior, making the credit instantaneous. Exactly as Alipay and WeChat have begun to realize in China, Apple is able to make credit applications almost useless, by mobilizing means of risk assessment that neither banks nor new players in split payment have. However, while the latter see their profitability compromised with the rise in rates which affects the cost of their refinancing, Apple will hardly have this concern since the new credit system it offers will allow it to use its plethoric cash (estimated at around $200 billion).

Of course, all this does not prejudge the future success of Apple Pay Later, while the regulations applied to split payments could seriously tighten and while the development of Apple Pay itself is still largely struggling to meet expectations. However, Apple Pay Later marks the appearance of new ways of operating in the banking market which, from now on, will no longer rely solely on new players without real own resources or profitability.

By Guillaume Almeras, founder of the monitoring and advice site Score Advisor

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