Will Apple Take A Big Bite Out Of The Banks? Financial Times -- April 22, 2023

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For investors, not traders.

I have a 30-year-rolling horizon. Asking where sectors or companies will be in 30 years helps me identify sectors in which not to invest. Example: in 30 years I won't be banking but Sophia, growing up with Apple iPhones, Apple Pay, and Apple Savings will be (investing).

Unfortunately, the article linked below is behind a paywall.

But if you can access it, it's the one article I'm recommending for today.

Link here: https://www.ft.com/content/fda76c42-0540-48a1-b1d9-259e1c2d6c3a. 

Archived.

It begins:

Apple's ventures into financial services signal greater ambitions to take on Wall Street.

Will Apple take a big bite out of the banks? 

In 2019, after months of grueling work, executives at Apple and Goldman Sachs were gearing up to unveil Apple Card, a landmark move for the iPhone maker’s burgeoning ambitions in financial services. 

As the launch date approached, the partners hit a sticking point. 

Apple, keen to be seen as providing unique value for customers and with a habit of grandiose marketing claims, wanted to peddle the product as the “most secure credit card ever.” 

Apple had leverage. 

Goldman saw the Apple Card as a pivotal product to show it could cater to Main Street customers. 

“The offering to Goldman was — ‘hey, you don’t have a consumer product and guess what? We can get you access to all Apple customers,’” says a former Apple executive. “Apple was aware so they squeezed everything they could out of that negotiation.”  

But with this marketing claim, Goldman had to push back. “You’re open to lawsuits if you say it’s the ‘most’ anything,” says one person familiar with the discussions. In the end they settled for the more muted claim that Apple Card “provides a new level of privacy and security”, and that the absence of the 16-digit number or security code on the card itself made it “more secure than any other physical credit card.”

Now, four years later, the iPhone maker is increasingly comfortable in the space and is stepping up efforts to expand further into it. 

In the past three weeks alone Apple has — with Goldman’s help — launched two big products. 

Apple Pay Later, its “buy now, pay later” product, is the first instance of Apple directly lending to consumers from its own balance sheet. 

Apple Savings, a high-yield savings account, offers US customers a 4.15 per cent interest rate, 10 times the national average. 

The deposits will sit with Goldman, which as a licensed bank has access to US government-backed insurance. The question for banks and other providers of financial services is how worried they should be about a tech company with 1.2 billion iPhone users, a $2.6 trillion market cap and a history of disruptive innovation making moves on to their territory. 

Apple’s scale makes even the world’s largest banks look little. Apple's services division alone, where it earns recurring subscriber revenues and App Store payments, generated $55 billion in profit last year — higher than JPMorgan and Citi combined. But it makes up just one-fifth of its total revenues.  

Let's repeat that:

Apple’s scale makes even the world’s largest banks look little. Apple's services division alone, where it earns recurring subscriber revenues and App Store payments, generated $55 billion in profit last year — higher than JPMorgan and Citi combined. But it makes up just one-fifth of its total revenues.

What do bankers think?

And the company hasn’t been shy about its ambitions in this space. Current job ads speak of “transforming the industry in payments, transit and identity”. 

And Jennifer Bailey, head of Apple Pay, said back in 2016 that Apple was on “a good, long journey, for us to replace the wallet." 

For JPMorgan Chase chief executive Jamie Dimon, the risk is clear enough for him to label Apple a bank. 

“It may not have insured deposits, but it’s a bank,” he said in June last year. “If you move money, hold money, manage money, lend money — that’s a bank.” 

Dimon again warned investors of the looming threat this month, saying “large tech companies” have “enormous resources in data and proprietary systems — all of which give them an extraordinary competitive advantage.” 

Stephen Squeri, chief executive of American Express, admitted to analysts on Thursday that he too is “paranoid” about Apple and Amazon, which he called “phenomenal” companies with deep links to the consumer. “We’re not naive enough to think that we can just go on . . . strolling down the street here,” he said. “We think everybody is coming after us.” 

The Financial Times story is based on interviews with eight people involved in the strategy, who requested anonymity as they were not authorised to speak publicly. Apple and Goldman declined to comment.

How did it evolve?

By design, Apple typically expands into new sectors not through flashy acquisitions but by incremental steps that give it a sustainable advantage over time. 

In finance, the fruits of Apple’s slow-burn strategy are clearest with Apple Pay, its wireless payment technology meant to “transform mobile payments” when it was first announced alongside the iPhone 6 in 2014. 

JPMorgan Chase chief executive Jamie Dimon says large tech companies have an ‘extraordinary competitive advantage’ given their vast data resources. 

Adoption was slow enough that Apple was mocked in its first years in operation. By 2016 just one in 10 global iPhone owners were using Apple Pay. But the user base snowballed into 50 per cent by 2020, according to Deepwater Asset Management. 

By 2022, adoption hit 75 per cent and the European Commission had opened an antitrust investigation. “They move at the speed and force of a glacier,” says Gene Munster, managing partner of Deepwater. Commenting on Apple’s next moves in banking, he adds: “This will take five to 10 years, but by then we’ll think of Apple in the same vein as Citi, JPMorgan and Wells Fargo.” 

So much more at the FT story.  

It's hard for me to disagree with both  Apple and Goldman Sachs.  

Apple's services division alone, where it earns recurring subscriber revenues and App Store payments, generated $55 billion in profit last year — higher than JPMorgan and Citi combined. But it makes up just one-fifth of its total revenues. 

The disclaimer:

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All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 

Again, all my posts are done quickly. There will be typographical and content errors in all my posts. If any of my posts are important to you, go to the source. 

A reminder, tag -- Apple bank.