News that Apple would be offering its own “buy now, pay later” service by splitting any Apple Pay bill into installments has hit the fintech lending world like a thunderbolt. But it turns out the new feature, while simple for consumers, required a bit of behind-the-scenes reorganization at Apple, including a brand new subsidiary that will run it.
The new feature, called Apple Pay Later, allows users to pay for their purchases in four equal payments made every two weeks, with no interest or fees. This “bill me later” type of payment has been popular lately as a complement to online retail at checkout, where companies like Affirm and Klarna have come up with easy ways to overcome hesitation. to “confirm order” with similar diagrams.
The thing is, Apple is a consumer technology company, and lending and credit are financial services, part of an industry with its own distinct rules and regulations. There are standards for these things which mean that an organization must meet certain requirements for its loans issued to be insured, to be eligible for certain interest rates, etc.
While Apple has previously partnered with payment providers and others financially to make Apple Pay and Wallet work, Pay Later represents the first time the company has handled loans itself, the risk management and credit checks. It may come as no surprise to anyone watching Apple’s recent fintech moves, adding a contactless card payment option for iPhone payment, then paying some $150 million for UK banking startup Credit Kudos in march.
In order to do this internally, Apple had to form a wholly owned but separate subsidiary called Apple Financing LLC, Apple confirmed to TechCrunch after Bloomberg first reported the news today. This company will do the actual credit reporting and issuance work in accordance with normal requirements, and will obtain the necessary licenses to operate in each regulatory jurisdiction. And of course, if everything ignites, only the LLC burns.
It is important to note that Apple did not obtain a banking charter for its new financing company. Although banks are often lenders, the reverse is not always true. It partners with Goldman Sachs as a Mastercard credential provider rather than taking on that role itself, and Pay Later uses the Mastercard installment program as its base.
To register you will need a debit card – you cannot refund credit with more credit. And Apple said it would do a “soft” credit application to make sure you’re all good in the eyes of the all-seeing, all-deciding credit gods without raising any alarms.
The new feature is expected to cause a serious change in the world of payments, as several BNPL startups are highly regarded. But Apple will take a huge chunk of its business with Pay Later; even if many businesses don’t accept Apple Pay and want to include installment plans, there will be competitive pressure to match Apple’s terms and minimum costs to merchants. Expect some serious changes in this corner of fintech soon.
