John San Filippo
Barbarians at the Gate – Again! Apple Jumps Into BNPL
By John San Filippo
On June 6, 2022, Apple issued a press release announcing many of the new features in its upcoming version 16 of iOS, the operating system for the iPhone. Buried more than a dozen paragraphs into this release was a description of enhancements to the Apple Wallet, including a new “feature” called Apple Pay Later.
According to the press release, “Apple Pay Later provides users in the U.S. with a seamless and secure way to split the cost of an Apple Pay purchase into four equal payments spread over six weeks, with zero interest and no fees of any kind.” In other words, by sheer force, Apple is now a major player in the buy now, pay later (BNPL) space.
“Built into Apple Wallet and designed with users’ financial health in mind, Apple Pay Later makes it easy to view, track, and repay Apple Pay Later payments within Wallet,” continued the press release. “Users can apply for Apple Pay Later when they are checking out with Apple Pay, or in Wallet. Apple Pay Later is available everywhere Apple Pay is accepted online or in-app, using the Mastercard network.”
Apple has offered a similar service for some time. However, it was only for products purchased in the Apple store and only for Apple credit card cardholders. Apple Pay Later expands this to any purchase, provided Apple Pay is selected as the payment method.
An In-House Effort
At its heart, the Apple credit card is simply Goldman Sachs credit card with an Apple logo on the front. Goldman Sachs makes all the credit decisions and issues all the cards. Apple innovation comes into play during the application and provisioning process, which is fast and extremely frictionless.
In contrast, Apple has created a separate subsidiary called Apple Finance to run the Apple Pay Later program. Goldman Sachs will still issue the MasterCard credentials required to complete the transaction, but beyond that, Apple Finance will administer the entire program.
That means Apple Finance will process the applications, make the credit decisions, and carry all of the paper for these BNPL transactions.
A Loss Leader?
Bryce Deeney is the CEO of equipifi, a Scottsdale, Ariz.-based company that helps community financial institutions enter the BNPL space. He told Finopotamus that he believes Apple Pay Later is simply a loss leader for Apple.
“Ask yourself why they’re doing this,” said Deeney in a recent interview. “In my opinion, it’s actually a loss leader to convert people to use the Apple card.”
He continued, “Now they’re gathering credit data on you as a consumer and saying, okay, well now we know you have a 720 FICO and you have an iPhone and you’re using Apple Pay Later, so now you're preapproved for the Apple card.” This puts an Apple card just one click away, because Apple already has all the data it needs to make a credit decision.
“I think it's just a customer acquisition tool to cross-sell their number-one payment product, which is their Apple card,” concluded Deeney.
A Market in Flux
BNPL is already facing scrutiny from consumer advocates, some likening it to this era’s payday lenders. At the same time, pure-play BNPL providers are increasingly struggling with late and missed payments. These factors caused BNPL provider Klarna’s value to drop from about $46 million last year to $30 million. Klarna also laid off 10% of its workforce earlier this year.
The Consumer Financial Protection Bureau is currently investigating several BNPL companies, including Klarna, Zip, Afterpay, Affirm, and PayPal, due to concerns about “accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology.” Apple’s push into the BNPL space makes the future of these companies even more uncertain.
How should credit unions respond? “Like any other type of disruption that comes along, as a credit union, you really need to think through your product roadmap strategy,” said Deeney. “How do you make sure you provide members the best products possible based on their needs and how they want to shop?”
Consumer demand is clearly strong. For example, for Cyber Week 2021 (Thanksgiving Day through the following Monday), BNPL usage for holiday shopping increased nearly 30% from the previous year, according to data from Salesforce.com. Because a credit union can see a member’s entire financial picture, as well as offer budgeting and educational tools based on that picture, they may well be in the best possible position to offer BNPL in a responsible manner.