Why Apple Acquired UK-Based Open Banking Fintech


The Apple-oids of Cupertino have to eat all this. Every time Apple makes an acquisition, the tech world — and increasingly now, the fintechaverse — goes into hyper speculation mode, trying to figure out why the company made the purchase and what it plans to do. do with the acquired business.

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

And when I say “a lot of 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’ smart products allow businesses to leverage Open Banking to improve affordability and risk assessments. Our predictive insights are built by combining transaction and loan outcome data. Our products help lenders streamline underwriting, improve decision-making accuracy, and support clients post-acquisition with our engagement tools.

While Credit Kudos describes its products as helping lenders – whose goal is often to get people to maximize their debt and make money off borrowers’ inability to repay it immediately – take comfort, as just about every other fintech start-up on the planet, the company’s “mission” is far more altruistic, promising to:

“Transforming the credit scoring system to provide fairer credit for all; helping people access responsible financing they can afford, when they need it. »

Phew. Good backup, Credit Kudos.

Why Apple Wants Credit Kudos: The Conventional Wisdom

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

1) Launch the Apple Card in the UK

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

“Given Credit Kudos’ specialty – providing a fast alternative to traditional credit scoring through open banking methods – it’s possible that Apple will want to bring its services in-house to support the launch of its new product in the UK. “

Fintech Snark Tank takes: This seems highly unlikely to me. Apple still needs a licensed 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 speculated that Apple’s acquisition of Credit Kudos “is likely to accelerate its shift into payment 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 complete a full credit application just to buy a $50 jacket, why not quickly check their affordability and creditworthiness right from their bank account? Credit Kudos immediately provides this capability to Apple.

Fintech Snark Tank takes: Taylor raises an excellent point, but who is underwriting the risk in this potential transaction with BNPL? Apple? I did not care. It doesn’t happen. As Jason Mikula, author of the Fintech newsletter Business Weekly, wrote on LinkedIn:

“Apple is not 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 is horrible.

Credit Kudos is also not going to assume the risk.

3) Enable account-to-account (A2A) payments via Apple Pay

Other guesses as to what Apple could do with Credit Kudos included leveraging fintech technology to integrate account-to-account payments into Apple Pay, allowing UK users to pay directly from their expenses or from their current account (which the British call a “current account”).

Fintech Snark Tank takes: This may not be feasible. The idea was dismissed by a few people responding to Mikula’s LinkedIn post, including Salt Edge CEO and Forbes Finance Council member Dmitrii Barbasura, who said: registered account information, not a payment initiation provider. .”

Geoff Whitehouse, Head of Public Relations and Communications at True Layer, added: “Credit Kudos does not have any open banking infrastructure – all connectivity is through a third party provider.”

4) Technology or talent acquisition

AltFi speculates that:

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

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

Why Apple Wants Credit Kudos: A Fintech Snark Tank Perspective

BNPL’s acquisitions happened faster than Ben Affleck found new girlfriends:

  • Block, born Square, acquired AfterPay for between $15 million and $29 million (the valuation was at the highest amount when the deal was announced, but Block’s share price fell about 50% upon closing of the agreement).
  • PayPal bought BNPL Paidy in 2021 for $2.7 billion.
  • Zip acquired New York-based Quadpay in 2020 for nearly $300 million, and is now looking to buy Sezzle.

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

But Credit Kudos is not a buy now, pay later competitor like AfterPay and Quadpay are. And that’s why there’s more to this deal than just “Apple acquires Credit Kudos to offer BNPL.”

Apple needs to address two strategic issues that go beyond simply offering BNPL or even launching the Apple Card in the UK:

1) Build a digital commerce ecosystem

Commerce platform providers like Block (I still think of them as Square), PayPal, Shopify, and even Klarna are developing 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 the digital commerce cake the company has been building for 10 years.

Klarna has also set up a digital commerce ecosystem.

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

2) Improve its capacity for data management/analysis

Apple is a product company. It’s not good with data like Google and Amazon are good at collecting and applying data.

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

The acquisition of Credit Kudos is a small, but still important, step towards closing this gap in Apple’s digital commerce arsenal.

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

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