Why Apple Acquired A UK-Based ‘Open Banking’ Fintech

OBSERVATIONS FROM THE FINTECH SNARK TANK

The Apple-oids in Cupertino must eat this stuff up. Every time Apple makes an acquisition, the technology world—and now, the fintechaverse—goes into hyper speculation mode, trying to figure out why the company made the purchase and what it plans to do with the acquired firm.

They’re probably rolling on the floor laughing this week at Apple HQ, as the company announced it was acquiring UK-based Credit Kudos, which many people refer to as an “open banking” company, for $150 million.

And when I say “many people,” I mean the incredibly small percentage of people on the planet who think they know what “open banking” is.

Who is Credit Kudos?

According to its website:

“Credit Kudos’ intelligent products enable businesses to leverage Open Banking to enhance affordability and risk assessments. Our predictive insights are built by combining transaction and loan outcome data. Our products help lenders streamline underwriting, improve accuracy in decision-making, and support customers after acquisition through our engagement tools.”

While Credit Kudos describes its products as helping lenders—whose objective is often to get people to max out on their debt and make money on borrowers’ inability to pay it off right away—rest assure that, like pretty much every other fintech startup on the planet, the company’s “mission” is much more altruistic, promising to:

“Transform the credit scoring system to provide fairer credit for all; helping people access responsible finance they can afford, when they need it.”

Phew. Good save, Credit Kudos.

Why Apple Wants Credit Kudos: Conventional Wisdom

Why is Apple accquiring Credit Kudos? The conventional wisdom among observers revolves around four possibilities:

1) Launch the Apple Card in the UK

Through its partnership with Goldman Sachs, Apple launched its Apple Card credit card in the US a few years ago. Is Credit Kudos Apple’s path to offering the Apple Card in the UK? According to AltFi:

“Given Credit Kudos’s specialism—providing a rapid alternative to traditional credit scoring via open banking methods—it is possible that Apple wants to bring its services in house to support the launch of its new product in the UK.”

Fintech Snark Tank take: This seems highly improbable to me. Apple still needs a chartered financial institution to partner with in the UK in order to offer its credit card. Just as Goldman Sachs provides the credit underwriting models for the Apple Card in the US, a UK financial institution is likely to bring its own credit models to the table for a UK-based Apple Card offering.

2) Offer a Buy Now, Pay Later (BNPL) Service

The Times hypothesized that Apple’s acquisition of Credit Kudos “is likely to accelerate its move into payments technology and products such as buy now, pay later.” Simon Taylor of UK fintech consultancy 11:FS told AltFi:

“Open Banking is the key to BNPL”. Instead of forcing consumers to do a full credit pull just to buy a $50 jacket, why not quickly check their affordability and credit worthiness directly from their bank account? Credit Kudos immediately provides that capability to Apple.”

Fintech Snark Tank take: Taylor makes a great point, but who’s underwriting the risk in that potential BNPL transaction? Apple? Fuggedaboutit. That’s not happening. As Jason Mikula, author of the Fintech Business Weekly newsletter, wrote on LinkedIn:

“Apple isn’t interested in directly being a lender itself, for several reasons. It’s capital intensive, highly regulated, and the optics of Apple debt collectors going after individuals or SMBs are horrible.”

Credit Kudos isn’t going to assume the risk, either.

3) Enable Account-to-Account (A2A) Payments via Apple Pay

Other guesses as to what Apple might do with Credit Kudos included leveraging the fintech’s technology to integrate account-to-account payments into Apple Pay, enabling UK users to pay directly out of their spending or checking account (which the Brits refer to as a “ current” account).

Fintech Snark Tank take: This may not be feasible. The idea was shot down by a few people responding to Mikula’s LinkedIn post including Dmitrii Barbasura, CEO of Salt Edge and a Forbes Finance Council member, who stated “For now, Credit Kudos is a registered Account Information Service Provider—not a Payment Initiation Provider .”

Geoff Whitehouse, PR and Communications Lead at True Layer, added, “Credit Kudos doesn’t have any open banking infrastructure—all of the connectivity is through a third-party provider.”

4) Tech or Talent Grab

AltFi speculates that:

“Another possibility, which would fit with Apple’s previous tendencies, is that the acquisition was motivated by a speculative land grab, both of market niche and employee talent.”

Fintech Snark Tank take: Uh yeah, sure, this is a possibility. But Apple is going to want the tech and/or talent for some reason at some point, so postulating that the company spent $150 for a startup with no idea for how it was going to put the tech and people to use seems unreasonable.

Why Apple Wants Credit Kudos: The Fintech Snark Tank Perspective

BNPL acquisitions have been occurring faster than Ben Affleck finds new girlfriends:

  • Block, nee Square, acquired AfterPay for somewhere between $15 million and $29 million (the valuation was at the higher amount when the deal was announced, but Block’s stock price fell by ~50% by the time the deal closed).
  • PayPal BNPL company Paidy in 2021 for $2.7 billion purchased.
  • Zip acquired New York-based Quadpay in 2020 for nearly $300 million, and is now looking to purchase Sezzle.

It would be a real coup for Apple to acquire a BNPL capability for just $150 million.

But Credit Kudos isn’t a buy now, pay later competitor the way AfterPay and Quadpay are. And that’s why there’s more to this deal than just “Apple acquiring Credit Kudos to offer BNPL.”

Apple has two strategic issues it must address that go beyond just offering BNPL or even launching the Apple Card in the UK:

1) Building Out a Digital Commerce Ecosystem

Commerce platform providers like Block (I still think of them as Square), PayPal, Shopify, and even Klarna are building out robust digital commerce capabilities that support a wide range of functionality in the commerce ecosystem.

Square’s acquisition of AfterPay is just the icing on a digital commerce cake the company has been building for the past 10 years.

Klarna, too, has been building out a digital commerce ecosystem.

PayPal highlighted its merchant value chain capabilities in its February 2021 investor presentation with a slide titled “We’re building a comprehensive platform to power the global digital economy.”

2) Improving Its Data Management/Analytics Capability

Apple is a products company. It’s not good with data the way Google and Amazon are good at amassing and applying data.

I often half-joke that the reason Apple positions itself as a “privacy friendly” company is because it doesn’t know what to do with the data it has on its customers.

The Credit Kudos acquisition is a small—but still important—step towards correcting this deficiency in Apple’s digital commerce arsenal.


This all said, I hope the folks at Apple aren’t laughing too hard right now.

.

About the Author

Leave a Reply

Your email address will not be published.

You may also like these