Breakingviews: Apple Pay push is scarier for fintechs than banks

Apple (AAPL.O) is taking a bite out of the financial-technology sector. Digital upstarts like Affirm (AFRM.O) and Jack Dorsey’s Block (SQ.N) should be on high alert. Lenders like Goldman Sachs (GS.N), however, have less to fear.

The $2.9 trillion iPhone maker led by Tim Cook is beefing up its in-house financial-services infrastructure and expanding further in consumer credit, Bloomberg reported on Wednesday. That involves bringing a raft of tools such as payment processing and credit-risk assessment in-house. Cook is also launching a “buy now, pay later” product that will allow consumers to spread the cost of purchases over instalments.

The push is scariest for Apple’s current financial-technology suppliers. Shares in CoreCard (CCRD.N) and Green Dot (GDOT.N), whose systems underpin the company’s credit card and peer-to-peer payment offering, fell by 12% and 5% respectively on Wednesday. That’s a fair reaction, since Cook seems intent on controlling his fintech infrastructure. He recently bought Credit Kudos, a UK startup whose technology could allow Apple to supplement conventional credit checks by accessing borrowers’ bank-account history.

Cook’s consumer-credit expansion should also worry pay-later players like $13 billion Affirm, Klarna and Afterpay, which Block bought for $29 billion. Apple Pay has almost 50 million U.S. users, according to eMarketer, giving it a formidable starting point from which to launch a pay-by-instalment product. Cook recently announced a new service allowing U.S. merchants to accept payments from customers just using an iPhone. That’s a direct threat to Block’s core business.

The trickier question is whether banks like JPMorgan (JPM.N), Goldman Sachs and Bank of America (BAC.N) should fret. Bloomberg reported that Apple could fund smaller pay-later loans using its own balance sheet rather than using a partner like Goldman, as it does for credit cards.

But it’s hard to imagine Cook cutting out the lenders entirely. Apple’s financial resources are huge: it had $203 billion of cash and marketable securities at the end of 2021. However, that’s tiny compared with the size of big U.S. banks’ balance sheets, which are comfortably in the trillions. And large-scale consumer lending isn’t lucrative enough to justify the regulatory hassle. Barclays’ (BARC.L) consumer, cards and payments business has generated an average return on equity of 16% since 2014, after stripping out intangible assets. Apple’s RoE this year will exceed 100%, according to Refinitiv estimates. Banks’ chief executives and Cook can probably get along.

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