Apple’s Breakout initiative could represent a significant expansion of the company’s financial services strategy, moving Apple beyond consumer products and deeper into the infrastructure supporting payments and commerce. While Apple has built a substantial consumer-facing ecosystem around Apple Pay and Apple Card, its presence on the merchant side of the transaction has historically been more limited.
That could change as Apple develops capabilities such as contactless payment acceptance directly through the iPhone and explores bringing more financial functions in-house. A broader platform strategy could give Apple greater control over both sides of the payment experience while reducing friction for consumers and merchants. It could also provide new opportunities to strengthen engagement with Apple Pay and Apple Card as competition from established payment and fintech providers intensifies.
As details continue to emerge on Apple’s ‘Breakout’ initiative, there are indications that the move will help Apple expand its financial services well beyond the existing consumer facing product suite. Ron Shevlin details the trends in Forbes:
Apple’s penetration and control in the consumer market is incredibly strong, but until recently, it’s had little presence on the merchant side. Apple realizes that it needs to pursue a platform business model to protect and grow its market position.
Reports in multiple outlets indicate Apple wants to begin competing in merchant services, which also correlates with the recent announcements that iPhones would be enabled to accept contactless payments. Shevlin highlights current lags in the Apple ecosystem that could be pushing the new strategy:
Apple has some payments shortcomings that is likely influencing the acceleration of the Breakout initiative:
• Apple Pay usage lags. According to a Q1 2022 consumer survey I fielded for Cornerstone Advisors, roughly half (52%) of consumers with a checking account and smartphone make mobile person-to-person (P2P) payments. Apple Pay’s share of this segment is 26%, in contrast to CashApp’s 43% share and PayPal’s 76% penetration.
• Apple Card growth is anemic. After seeing a doubling of Apple Card holders in 2020, growth in 2021 slowed to a crawl. The Cornerstone survey found that the number of consumers with an Apple Card grew from 6.4 million at the beginning of 2021 to just 6.7 million at the start of 2022. This suggests that some (if not many) Apple Card holders voluntarily or involuntarily discontinued their cards in 2021.
Fintech Snark Tank take: Apple is betting that a platform approach will help stimulate Apple Pay and Apple Card growth better (and maybe even faster) than its current marketing approaches.
As Shevlin points out, reducing friction in payments creates a better consumer outcome. Apple appears to be positioning themselves to continue in their preferred unique ecosystem, but with merchant benefits to match their initial consumer-focused approach.
Apple’s Breakout initiative suggests the company sees financial services as more than a collection of individual consumer products. Expanding into merchant services and payment infrastructure could allow Apple to create a more integrated ecosystem connecting consumers, businesses, and financial transactions.
The strategy could also address weaknesses in Apple’s existing payments portfolio by creating more opportunities for consumers to use Apple Pay and other financial products. If Apple successfully combines its consumer reach with stronger merchant capabilities, it could become a more influential platform across the broader payments ecosystem.
Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group