Why Apple acquired a UK open banking technology company

By alexander jonesinternational banker

Owith a small fanfare accompanying the move, a popular cryptocurrency media publication The block reported on March 23 that US tech giant Apple had acquired Credit Kudos. The acquisition reportedly closed earlier in the week, with Credit Kudos valued at $150 million. But to this day, there remains speculation as to exactly why Apple decided to make this particular move.

Credit Kudos is a UK-based public banking start-up that helps lenders make better decisions and deliver finely tuned credit scores. According to the company’s website, its smart products “enable businesses to leverage Open Banking to improve accessibility and risk assessments,” while its predictive insights are built by combining transaction data and loan results. It previously raised £5m in a Series A funding round in April 2020, which AlbionVC led with total funding of £7.8m. “Our products help lenders streamline underwriting, improve decision-making accuracy, and support clients post-acquisition with our engagement tools,” the fintech company adds. It does much of this through its application programming interface (API), which accesses the UK’s Open Banking platform to analyze bank account data, which can then be used to help banks take faster and better decisions when dealing with clients seeking loans and other financial resources. services.

The company is authorized by the Financial Conduct Authority (FCA) and counts financial firms Curve, Admirals and Atom among its users. Indeed, Atom announced in March 2021 that it would partner with Credit Kudos to further build open data capabilities for business loan affordability assessments to deliver over £1 billion (1 $.4 billion) in loans over the next two years. “Over the past year, it has become increasingly difficult for lenders to understand the current financial situation of individuals and businesses,” Credit Kudos founder Freddy Kelly said of the partnership. “Traditional credit reports aren’t up-to-date or comprehensive enough, but open banking data allows us to provide lenders with a holistic, real-time view of an individual’s or business’s finances, as well as a forecast of future circumstances. Our partnership will help Atom Bank make significant progress in its services and support even more small businesses in the months and years to come. »

So what specifically caught Apple’s attention in such a business model? In short, it is difficult to draw definitive conclusions at this stage. “Apple has a history of acquiring something and then being silent for two years. Expect the same here,” Simon Taylor, co-founder of digital challenger consultancy 11:FS, told the fintech news publication. AltFi. However, this lack of clarity has not ceased AltFi to postulate potential motivating factors underlying the acquisition, after discussing them with a number of industry insiders. He posits that the most likely explanation is that Apple is planning to launch its credit card in the UK. After rolling out Apple Card in the US in partnership with Goldman Sachs, the tech giant could now potentially turn its sights to the UK. Given Credit Kudos’ specialty – providing a fast alternative to traditional credit scoring via open banking methods –AltFi argues that it might be possible that Apple wants to bring its services in-house to support the launch of its new product in the UK.

But not everyone is convinced that this is Apple’s main goal. “A few people have suggested this might be a way to launch Apple Card (or the path to Apple Card) in the UK,” according to Taylor. “The idea being the low-income segments would be worthy of an Apple Card. It’s definitely a possibility, but it’s also an expensive market entry for what could have been a partnership with an issuer like they’ve done it in the U.S. Ron Shevlin, director of research at Cornerstone Advisors, also sees that as unlikely.”It seems highly unlikely to me. Apple still needs a chartered financial institution to partner with.” associate in the UK in order to offer his credit card,” Shevlin wrote in a recent Forbes article. “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. “

Perhaps a more likely explanation for the purchase can be found in an article from March 30and article of Bloomberg titled “Apple is working to bring more financial services in-house”. The company’s initiative is dubbed “Breakout” and would involve developing its own payment processing technology and infrastructure for future financial products, reducing its reliance on external partners over time. “A multi-year plan would bring a wide range of financial tasks in-house,” the article said, based on information it received from unnamed sources. It also identified payment processing, risk assessment for loans, fraud analysis, credit checks and additional customer service functions such as dispute management as some of the key services targeted by Apple. “Last week, Apple acquired British start-up Credit Kudos Ltd., which uses banking data to make lending decisions. The company will likely leverage this technology to help build its own infrastructure,” he added.

As Apple seemingly steps up its efforts to integrate a range of financial services in-house, it would certainly appear that acquiring a public banking company that improves loan underwriting capabilities would help it achieve its ambitions for financial services. According to Tom Noyes, CEO and founder of crypto startup Accept Payments and partner at investment firm StarPoint LLP, such moves are also part of a broader Apple strategy, which includes: owning the “supply chain” of payments by minimizing external vendors (software) and partners touching consumer data; enable Apple Card expansion; reducing network costs and improving integration into local systems such as India’s Unified Payment Interface (UPI); improve the customer experience by enabling Apple Cash in all markets and connecting to local programs; and enable iPhone expansion into areas without adequate access to consumer credit.