Is Apple entering the credit space?

According to unconfirmed sources, Apple has allegedly acquired credit-scoring startup Credit Kudos. The deal marks yet another addition to Apple’s venture into the expanded payments space. What are the potential implications for incumbent banks and the payment industry as a whole?

The news was first reported by The Block, which cited several unnamed sources close to the deal that confirmed the transaction at a valuation of $ 150 MUSD. To further strengthen the alleged acquisition, Credit Kudos has already redirected their website terms of Use to  a page outlining Apple’s terms of use.

At its core, Credit Kudos offers an Open Banking and machine learning-based credit score that it says enables lenders to increase acceptance of previously declined customers and reduce defaults. it is a challenger to incumbent credit rating agencies such as Experian, Bisnode and Equifax.

Credit Kudos’ technology uses a combination of machine learning and Open Banking-gathered transaction data to predict an individual’s likelihood of repayment. According to an interview with Finextra, the model has been trained on transaction data and loan outcomes collected for more than six years and enables lenders to score all applicants, not just those with credit history.

This acquisition follows several moves that show that Apple has its eyes set on the payment industry. Ever since the launch of Apple Pay back in 2014, Apple has continued their push towards the mobile payment market by safeguarding NFC access on their smartphones as well as P2P payments and launching an Apple-branded credit card to compensate for slow adoption rates of mobile payments.

Following Apples acquisition of Mobeewave back in 2020, this acquisition outlines Apples broader ambitions in the extended payment ecosystem. The jury is still out on the potential implications, as Apple are holding their cards close to their chest.

The acquisition will allow Apple to gather and consolidate user data through APIs, and a broader access to user data will undoubtedly strengthen Apples position towards mobile wallet dominance. This is a subject I have covered previously and may lead to disintermediation of the customer interface, allowing Apple to act as a gatekeeper for potential cross-sales through every banking interactions. This scenario may be a costly outcome for incumbents.  Looking at how other industries like the hospitality industry where players like Expedia take commissions between 10 to 15 percent have been disintermediated; there is likely a willingness to pay to be the default payment option if third-party wallets become dominant players for digital payments.

Some news outlets point towards the ongoing open banking consolidation trend, following VISA and Mastercard’s shopping spree in acquiring API-aggregators Tink and Nordic API Gateway/Aiia. It is also speculated whether deal could pave the way for Apple Card to arrive on the other side of the Atlantic. Apple’s credit card has been available in the US since August 2019. The API could help the company determine whether to approve a UK resident’s application for an Apple Card.

Cnbc also points out that the deal could have serious implications for some of Credit Kudos’ clients, which include the London-based fintech firms Curve and Fronted.

However, the big question is if this is a move towards the lucrative Buy Now Pay Later (BNPL) Space as a natural extension to the payment transaction. It is already rumored that Apple is developing their own buy now pay later solution that is allegedly named Apple Pay later.

I drew the comparison to Square following Apple’s acquisition of Mobeewave, and how that acquisition put Apple in direct competition with Square, a provider of smartphone-enabled POS terminals for small businesses. By allowing the smartphone, itself to become a payment terminal, Apple effectively eliminates the need for external peripherals such as the ones provided by Square and iZettle, and lets buyers tap either their phone or credit card directly on the merchant’s phone to process the payment.

The real value of Square lies in its unique positioning in its customer value chain.  By placing themselves in the midst of their customer’s income stream, Square is able to leverage this position to provide small business loans. Through square cash, merchants will receive a loan offer based on their card sales, and the ability to repay it automatically with a percentage of their daily card sales through Square.

Since then Square has put USD 29 billion on the table to purchase buy now pay later company Afterpay in order to get in on the action and complement Square’s existing payment ecosystem. Square plans to integrate Afterpay into its existing Seller and Cash App business units, so that even “the smallest of merchants” can offer buy now, pay later at checkout. 

In the time to come, we should expect to see buy now pay later transition from the checkout process at online retailers and become an integrated offering from digital wallets such as the announced Apple Pay Later, PayPal’s, Pay in Four, and the upcoming integration of Afterpay in the Cash app. For incumbent banks and credit institutions, this is bad news, as banks are not in the driver’s seat in the digital wallet department.

For incumbents, it is imperative to rethink how credit is offered. The lines across traditional credit products are already blurring, as banks offer loans against open credit card lines and fintechs offer installment-based credit cards or debit cards with pay later features. Loan origination, therefore, needs to be agnostic of the product through which credit is being delivered.

The key takeaway from all of this is that in a digital world, the customer is always right, and developing customer-centric offerings that reduce friction for both consumers as well as merchants is a critical factor.