How Apple is saving the banks (for a fee)

Apple Pay, Apple Pay Cash, Apple Card and Wallet are hugely disruptive solutions that show how Apple could threaten the retail banking sector  – or, help it to thrive (for a fee).

We’re not a bank

Speaking at a CNN conference last week, Apple’s VP Internet Services, Jennifer Bailey discussed Apple’s plans around Apple Pay.

She made a highly significant statement retail banking professionals should think deeply about:

“We’re not interested in being a bank… particularly the regulated part of that.”

Think about that.

This statement speaks volumes to the company’s strategy. It says Apple wants to work with existing financial providers to build its financial services. It wants to partner, not compete.

It doesn’t want to eat the sector. It wants to innovate it. 

And make some money…

Think about the regulation around the banking sector, particularly in the consumer-facing space.

‘Move slow, stay stable’

To achieve a banking license, operators must accept a high degree of regulation and must act with a level of probity that directly conflicts with the ‘move fast, break things’ mantra at the heart of Silicon Valley.

Banks face increasingly complex business environments, battling up-&-coming tech firms who want to replace the banks.

Incredibly, some research suggests that as many as 86% of millennials only use digital payments, if they can.

The problem is that for all the software developers working in the banking sector, most established providers are grappling with legacy systems supplemented by creaking (and frequently incompatible) machinery added at a later date.

Over the last few years of researching the sector, I’ve formed the opinion that much of the work done by retail banking IT is dedicated to simply keeping those legacy systems working, rather than improving them.

This has created an environment in which legacy technologies and traditional business practice are holding industry evolution back.

Gartner observes that 45% of financial industry CIOs believe their own organizational culture gets in the way of their digital initiatives. The last time I checked 40 percent of existing banking providers don’t yet have a digital transformation strategy in place.

Call in tech support

These challenges are real problems to theworld’s biggest financial services providers as they attempt to navigate increasingly complex markets and battle more agile competitors, hungry to steal their lunch money.

Incumbents are at a disadvantage.

They know it.

This is driving many in the sector to seek out partnerships with cutting-edge tech firms, providing the technology experience and business agility they need to survive the onslaught of challenger banks.

Some retail bankers may see Apple as yet another challenger.

After all, it already has the technologies they need: a widely deployed and highly secure mobile ecosystem, cutting-edge biometrics and its own financial services platform. It even has its own credit card.

And is already sufficiently agile to deliver improvements across its ecosystem.

Fast…

Indeed, it’s hard not to see Apple as the biggest challenger bank in the world.

Except, it doesn’t want to be a bank.

Take your partners…

And is already acting as a partner.

Think about Apple Card. For all the hype around defining the future of fintech, the card is being introduced with Goldman Sachs, a name almost as old as the existing sector itself.

Not only this, but:

“90 of the world’s 100 largest banks by asset size are deploying Apple products to improve efficiency and effectiveness across their organizations,” according to Apple CFO Luca Maestri during Apple’s most recent results call.

Not so long ago I reflected at the threat faced by the banking sector as public support for that sector shrank in reaction to the financial crash.

That still seems true.

But it seems to me that rather than becoming a catalyst in this process, Apple has selected to develop its own services and fintech ecosystem from which it can offer a lifeline to incumbents in the financial services industry.

It is offering a way those established incumbents can save themselves from the inevitable collapse of the retail side of their business by working with Cupertino, rather than against it.

This has happened before

This isn’t unique, of course.

If you think back to 2001, Napster and the introduction of iTunes and iPod, you can see that Apple has done this before.

At that time the music industry faced its own revolution.

The business was collapsing. File-sharing was killing music.

Though many disagreed.

Apple threw a lifeline to the industry, and (arguably) that’s why we still have any record labels left at all these days.

Apple hasn’t eaten them yet.

Perhaps it never will.

In these terms of reference, Apple has played a shrewd hand.

Rather than competing with incumbents in either space (banking or music), it instead found a way to provide the cutting-edge tech those industries needed to survive.

Innovation as a service. Digital transformation for the rest of us.

For a fee.

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