Apple’s Strategy to Dominate Payments with Open Banking Fintech

The move towards an open banking ecosystem, where insights from multiple organizations are shared to deliver more personalized and value-driven financial services, is accelerating. It is being embraced by traditional and non-traditional firms like MasterCard, Visa and even Apple. What does this mean and why should bankers care?

In an increasingly active banking ecosystem, Apple is reported by The Block to have acquired Credit Kudos, a U.K.-based open banking startup that helps lenders make better credit decisions. The platform is sourced from the U.K.’s open banking framework and could be considered a competitor to the big credit reporting agencies, such as Equifax, Experian and TransUnion. While not a large acquisition, it is not unusual for Apple to use M&A to expand the functionality of its primary products like the iPhone.

Open banking allows financial services companies to access and share personal financial data for more contextualized engagements that are embedded into a consumer’s daily life. This is accomplished with application programming interfaces (APIs) that enable applications to communicate with each other. While adoption of open banking in the U.S. lags behind Europe and Asia, activity is picking up among both traditional and non-traditional financial firms.

The Credit Kudos platform promotes itself as being able to enable businesses to use alternative predictive insights to improve access to credit for consumers, improve the speed and accuracy of loan underwriting, and enhance the ongoing engagement with loan customers during the life of a loan.

Read More: What Apple’s New iPhone Contactless Payments Move Means for Banks

Another Financial Building Block for Apple

The acquisition may open the door for the introduction of the Apple credit card in the U.K., or it could enhance the credit platform for Apple in the U.S., or both. While there’s no indication as to the way Apple will eventually leverage Credit Kudos, there is no reason to believe the platform use would be limited to only credit products.

This modest acquisition is not Apple’s first foray into finance. The company has continued to build momentum in financial services leveraging the Apple Pay mobile wallet and the Apple Card (in partnership with Goldman Sachs). The availability of an open banking credit-focused product could provide consumers credit score checks or alerts associated with the Apple Wallet and/or Apple Card similar to what is available with some premium card products.

Fintech M&A:

Apple acquired U.K.-based open banking fintech Credit Kudos in a deal that reportedly valued the startup at about $150 million

Having a broader way to assess credit worthiness beyond traditional criteria could expand the available prospect universe for credit products similar to the way many fintech firms use alternative data to provide buy now, pay later (BNPL) services to consumers with thinner credit files. So, it is possible that Apple will expand into this quickly growing product category, using its existing credit card and wallet customer base as a springboard for growth.

There were indications that Apple was about to introduce a product called ‘Apple Pay Later’ last year, according to Bloomberg. The product was going to use Goldman Sachs as the lender for the loans, but the offering was not going to be tied to the Apple Card and wasn’t going to require the use of one. This would allow customers to use the Pay Later functionality seamlessly no matter what card a customer used within Apple Pay.

Read More: What Banking Providers Can Learn from the Apple Card Experience

Need for Apple Pay Engagement

More and more financial organizations realize that the holy grail of customer loyalty is engagement beyond a great customer experience. Nobody can argue against the exceptional user experience of applying for an Apple Card, or using Apple Pay at a merchant. The processes are simple, intuitive and very fast. Apple also doesn’t stop trying to make processes easier, as it did in February, when it announced Tap to Pay on iPhone, a mobile point-of-sale (mPOS) solution.

Unfortunately for Apple, a great user experience hasn’t been enough for the use of Apple Pay. There has been only modest use and adoption of Apple Pay after more than seven years. According to, while 43.5% of consumers have devices capable of supporting Apple Pay, only 6.1% of those who have Apple Pay activated on their iPhones use it in-store to pay for purchases. This is despite the reality that 70% of merchants accept Apple Pay.

“The challenge is convincing consumers that the value of Apple Pay is big enough to trade off the ubiquity and utility of the plastic card they know how to use, is accepted everywhere they shop, and doesn’t require using a particular device to pay for their purchase,” states PYMNTS. The issuance of contactless debit and credit cards has made the challenge even tougher.

Adding additional functionality, like BNPL to the Apple Pay service may reset the competitive battlefield by increasing engagement with the service and enabling extended payments on purchases outside the Apple Card universe.

Why Should Bankers Care?

As with many business decisions made by Apple, Amazon, Google and other big tech players, there are lessons (and warning signals) that are worth understanding. First of all, having a challenger mindset that is always searching for marketplace opportunities, is a leadership and cultural advantage of winners.

More important is the importance of customer engagement in financial services. Consumers no longer have a single financial partner. They have created their own open banking financial relationship platform that includes multiple traditional and non-traditional financial services providers. The winners, in the long-run, will be those organizations that capture not only the largest share of market, but the largest share of mind. In a digital world, this requires more than a transactional relationship. It requires that your relationship with the consumer is considered valuable.

Finally, the potential expansion of Apple’s foray in financial services can’t be taken lightly, despite the seemingly modest acquisition of Credit Kudos. A vast percentage of consumers own and love Apple products and services. With the acceptance of Apple Pay at 70% of merchants and the continued success of the Apple Card, Apple represents a ‘sleeping giant’ from a competitive perspective.

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