Payment innovations remain Apple’s top Fintech priority

With a market capitalization of more than $2 trillion and over $100 billion in annual profits, the American technology giant Apple is one of the most valuable companies in the world. Widely known for its consumer electronics, including Macintosh personal computers, iPhone smartphones and iPad tablets, the company has been consistently innovating over the years and is now exploring areas such as augmented reality and virtual reality (AR/VR), semiconductors, but also payments and financial services .

An analysis by business analysis and market intelligence platform CB Insights that looks at Apple’s acquisitions, partnerships and investment activity shows that the firm has acquired no less than 25 companies since 2018.

Data points to four key strategic priorities centered on AR/VR, digital health, artificial intelligence (AI) and machine learning (ML), and semiconductors and advanced materials, but recent developments also suggest a greater commitment to developing the finance business.

This is evidenced by the creation of Apple Financial, a wholly-owned subsidiary, which will operate the company’s upcoming Apple Pay Later service, which is scheduled for a public release in the fall of 2022, as well as the acquisition of the British credit reference agency Credit Kudos for a reported $150 million.

An earlier Bloomberg report has also revealed Apple’s secretive “Breakout” initiative that reportedly seeks to bring more financial services, including payment processing, risk and fraud analysis, credit checking, subscription programs for hardware purchases and buy-now-pay-later (BNPL), in-house.

These moves suggest a desire by the firm to reduce reliance on third parties and banking partners, and perhaps also to a broader ambition to build a full-fledged financial services offering and create new revenue streams, Alex Johnson, director of fintech research at investment advisory firm Cornerstone Advisors, wrote in an in-depth opinion piece in July.

Focus on payments

Although Apple has explored products like credit cards, BNPL and checking accounts, it seems that payments are still the company’s top priority at this point.

A separate analysis from CB Insights points to several payment innovations that Apple is actively working on. It first cites digital identity (ID) wallets, a new generation of mobile wallets intended to act as an all-in-one solution for friction in not only payments, but also ID verification and access management.

Just as physical wallets are used to carry identification documents such as driver’s licenses, office badges and student cards, digital ID wallets aim to provide users with a way to digitally store payment information as well as important documents, including IDs, passports, citizenship information and even biometrics information.

In the field, Apple has been among the first movers, announcing in September 2021 that eight US states had begun supporting Apple Wallet IDs, allowing their residents to add their driver’s license or state ID to Apple Wallet and present these documents at select airport security checkpoints. Apple said it will expand to retailers and venues next.

Apple Wallet IDs, Source: Apple

The other trend Apple is pursuing is portable payments. The company, which already pairs its mobile wallet offering with its smartwatches, announced in February 2022 a new feature poised to boost the use of NFC-enabled payments and encourage the use of wearable devices to conduct transactions.

Called Tap to Pay, the feature allows businesses to use iPhones to accept contactless payments without having to purchase or manage additional hardware. At checkout, the merchant simply needs to ask the customer to hold their iPhone or Apple Watch to pay with Apple Pay, their contactless credit or debit card, or other digital wallet near the merchant’s iPhone, and the payment will be completed using NFC- technology.

Apple Tap and Pay transaction, Source: Apple

Apple first launched its digital wallet and mobile payment system back in 2014. At the time, only 3% of US retailers had access to contactless payments. While the adoption of Apple Pay was slow at first, the service began to pick up in the years that followed, and is now quickly gaining momentum.

According to research by the American venture capital firm Loup Ventures, the share of iPhones with Apple Pay enabled was 10% in 2016 and 20% in 2017. In 2020, it reached 50%, and it is now around 75%. About 90% of retailers in the US now accept Apple Pay, the company claims.

Mobile wallets are one of the fastest growing industries in the world. According to CB Insights Industry Analyst Consensus, it is currently worth around US$1 trillion and is projected to grow to over US$7 trillion by 2027.