Digitalization and fintech, by developing banking apps and various payment options, make money flows easier, accelerate their movement and expedite overall banking sector operations. But, as usual, each phenomenon has two sides. New opportunities not only make life easier, but also create problems for incumbent financial services. The banking system today is losing its stability due to several simultaneous breakthroughs (which undermine banks). The explosive development of cryptocurrencies and CBDC developments are breaking the architecture of the system into pieces and are robbing banks of their extra fees from services and acquiring, and the increased volume of financial services, offered by tech corporations, is creating yet another parallel world of financial flows, which could be totally free from involvement of banks. But for now, this is just probable future.

So, for example, year after year Apple corporation has been ramping up its range of financial services, offered to users of its gadgets. It all started in 2014 with the launch of Apple Pay mobile payments system, followed by the implementation of Apple Cash payment app, the release of Apple Card credit cards, and finally, with the activation of a payment receipt function via iPhone (tap to pay). Tap to Pay enables sellers to accept payments via a single tap on their iPhone. The combination of these innovations enables participants of the process, when both buyer and seller use Apple devices, to bypass banks or payment systems such as Visa and Mastercard, which process payments.

However, it is too early to say that banks are totally excluded from this process. The process of Apple Card credit card launch in the USA was implemented together with Goldman Sachs bank, which provided credit underwriting services. Along with this, Apple payment business revenues are for now generated from a fee (0,15%), paid by credit card issuers, i.e. banks, when their cards are used by holders for Apple Pay transactions.

Next steps of the corporation in the financial sector also require cooperation with banks. In April 2023 Apple launched a high-yield deposit account at 4,15% interest rate for those Americans who hold an Apple Card. But since Apple lacks a banking license, the deposits will be held at its banking partner, Goldman Sachs. It is curious that the savings account, offered by Goldman Sachs bank proper, now yields only 3,9%. By the way, the yield, offered by Apple, is more than ten times higher than the average rate across the country: according to the Federal Deposit Insurance Corporation (FDIC), the average value is 0,37%. One thing is for certain, that high-yield accounts of the corporation are focused on attracting new users into its ecosystem.

Moreover, the corporation has major competitive advantages over banks. First, set against its financial power, even major banks look like dwarves. As stated by the Financial Times, just one division, making its money from subscriptions and App Store purchases, in 2022 made $55 bn in profits, which is a fifth of Apple revenues, but this figure is greater than combined profits of JPMorgan and Citi. Second, brand strength creates a feeling of security during the times when the banking system is trying to curb the crisis. According to the FRS, starting from March 2022, when the regulator started raising rates, commercial bank customers withdrew about $900 bn from their deposits. Third, the large base of the tech giant’s product users could potentially convert to its customer base as related to the part of the corporate business that is responsible for fintech, alternative to the banking sector. Getting customers involved with new products won’t require any major costs for the corporation.

Currently the corporation continues development of its tools to set up an independent financial ecosystem. Apple has plans to enter the market of Great Britain with its Apple Card offer. To avoid using customer loan underwriting services of local banks, in March 2022 the company bought Credit Kudos, a British fintech startup. The startup is developing software, which uses banking customer data to run their credit standing checks. Credit Kudos is competing with major credit reporting agencies, including Equifax, Experian and TransUnion. The startup operates under the Open Banking concept, providing for use of open APIs in the financial sphere. Under this concept, financial company officers, when profiling potential customers, could get their account and loan repayment data (with customer consent) in a simpler and faster way. Open Banking is also required to put together individual customer offers based on their track record, to expand financial transparency opportunities for customers.

The startup’s products also enable Apple corporation to execute its plans for implementation of yet another innovation in the financial services spectrum, which is being implemented as a pilot – “Buy Now, Pay Later” (BNPL). The corporation has named its version “Pay Later”. Currently Pay Later is only available in the USA and only to specific, randomly selected users. The service lets customers break down their online purchases into four payments over six weeks, free of any interest. The service operates with Apple’s own funds, when banks use borrowed funds, for example, customer deposits, to secure their operations. Apple can afford to operate with its own money entirely, at least, with the current volume of business.

At present, the corporation, while creating an alternative to banks, still requires banking support for several areas of the range of its financial services. At a later stage Apple will either receive a banking license, or its operations will come under close scrutiny of financial regulators, which may lead to a conflict with the state, i.e. developed services may be overlooked by the government controlling agencies and may be fraught with unaccounted flows of funds.