Apple Inc. (AAPL, Financial), which is known for its disruptive technology, innovative products and creating experiences that have made people obsessed with its products around the world, is no longer a purely tech company. Its entry into fintech comes as no surprise as the company is known to beat the competition by expanding its ecosystem and providing customers with what they want and need. As the digital payment industry continues to grow, Apple has taken strategic steps to solidify its position in the market.
Through innovative products and partnerships with major financial institutions, Apple is offering its users a range of convenient and secure payment options. The company recently launched a new savings account for its Apple Card users a few weeks after entering the buy now, pay later market in March. The company is gradually making its way into digital payment systems. This move seems like a win as the company will be able to monetize its users better with the rollout of these services.
How Apple is strengthening its position in the digital payment industry
The timing of the launch of Apple’s new financial products is significant as there is a growing preference for real-time payment options worldwide. This move is expected to strengthen the company's position within the fintech industry and position it as a competitor to other financial institutions and digital platforms that offer high-yield savings accounts. Venmo, which currently holds over 80% of the market share in the U.S., is one of Apple's biggest competitors in this space. According to Statista, the digital payments market is projected to reach $9.46 trillion this year and grow at a compounded annual rate of 11.8% through 2027.
In March, Apple introduced a new service called Apple Pay Later in partnership with Goldman Sachs (GS, Financial). This service will allow customers to pay for their purchases made with Apple Pay in four installments over six weeks, with no interest or fees. This offers benefits to both customers and merchants. Apple Pay Later is integrated with Apple Wallet, where customers can manage their loans and payments easily. Users can apply for a loan ranging from $50 to $1,000 within the Apple Wallet app without affecting their credit score. This will allow customers to enjoy more flexibility and convenience when shopping, without worrying about high interest rates or hidden fees.
Until recently, the company did not have a meaningful presence on the merchant side, though it has always been a behemoth from the customer side of the transaction. Apple is now pursuing a platform business model to protect and grow its merchant market position. According to a study from Cornerstone Advisors, approximately half of the consumers with a smartphone and a checking account make mobile person-to-person payments with PayPal (PYPL, Financial) and CashApp, which take the majority of the payment market share. In 2021, Americans made $100 billion worth of retail purchases using BNPL services. This is the market that Apple is trying to tap into.
Apple Card holders' growth slowed in 2021 and 2022, but the company has over 40 million Apple Pay users in the U.S. today and 6.7 million Apple Card holders. While the competition is stiff in the digital payment market, the Apple Pay Later service could help increase its utilization and adoption among both merchants and customers.
The partnership with Goldman Sachs also offers a savings account with an annual percentage yield of 4.15%, which is over 10 times the national average in the United States. According to Bankrate's April 19 weekly survey of institutions, the national average yield for savings accounts is 0.24%. Apple's savings account has no minimum deposit or balance requirements, nor does it charge any fees. Users can create an account through the Wallet app on their iPhones and deposit their Daily Cash Rewards from Apple Card purchases, as well as other funds from various sources. To access this, individuals must own an Apple Card. The card also provides up to 3% cash back on purchases through its Daily Cash reward program which can be directly deposited into the savings account.
The high-yield savings account aims to help users improve their financial well-being by building their savings over time. Withdrawals can be made at any time through the savings dashboard in Wallet, without any fees. The highest yields on savings accounts in the Bankrate database are now approaching 5%, with UFB Direct providing 4.81%, one of the highest yields available. Apple's savings account now ranks 11th in Bankrate's rankings. This high-interest savings account may attract more customers to its Apple Card and encourage them to spend more, generating more revenue for both Apple and Goldman Sachs through deposits and transaction fees. Additionally, the savings account may offer a long-term advantage to Apple, as it could pave the way for more fintech offerings in the future. The company is also interested in increasing customer loyalty and retention by offering more value and convenience to its Apple Card users.
Takeaway
Apple's new BNPL service and the high-yield savings account are significant steps toward achieving its goal of becoming a major player in the payment industry. By allowing customers to make installment payments for any product or service while encouraging them to save, Apple is broadening its influence beyond its ecosystem of devices and services. CEO Tim Cook said in 2018 that the company will look like a services giant by 2028, and the company's aggressive push into the financial services industry is part of its strategy to achieve this objective. The recently launched payment solutions will expand the company's ecosystem meaningfully in the long run, creating a good platform for it to monetize its user base better.
