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In a surprise move, Apple has announced that it will be self-funding its new buy now, later (BNPL) service using its own cash-rich balance sheet.
In a statement released this week, Apple said it plans to use a wholly-owned subsidiary known as Apple Financing, which will be used to check credit scores and extend loans to Apple Pay Later users.
When Apple first revealed that it will be entering the BNPL arena, analysts had speculated that Goldman Sachs would act as creditor to the service, as reported by VIXIO.
However, Apple has now confirmed the credit extended to its BNPL users will come from its own balance sheet, while Goldman Sachs will act as the technical issuer of the loans and sponsor of the banking identification number (BIN) associated with each user.
Nonetheless, the move can still be seen as an expansion of Apple’s existing relationship with Goldman Sachs, which has been the issuer of the Apple Pay credit card since 2019.
According to Reuters, Apple Financing has lending licenses in all US states where such pay-later services are allowed.
Apple also confirmed, as previously reported by VIXIO, that it will use Mastercard Installments' BNPL platform, a white label BNPL product.
For BNPL providers such as Apple, the platform aims to ease the cost of going to market by providing ready-made relationships with individual merchants.
The launch of Apple Financing can be seen as an attempt to ensure that Apple’s control of financial service products remains largely in-house.
The decision to finance its own BNPL service can also be seen as a useful outlet for the nearly $200bn of cash and marketable securities that Apple currently holds on its balance sheet.
Apple’s full-year revenue for 2021 came in at $378bn, and its revenue for Q1 2022 reached a record $97bn, despite an ongoing chip shortage and global supply chain disruptions.
In April, Apple also announced that it would increase its existing share repurchase programme by an extra $90bn.
Original story: Apple Enters BNPL Arena, Launches New POS Solution For Merchants Using iPhone (June 8, 2022)
On the opening day of its annual Worldwide Developers Conference (WWDC), Apple confirmed that iOS 16 will mark the launch of a new BNPL service known as Apple Pay Later.
Available only in the US, Apple Pay Later will offer users the ability to split the cost of an Apple Pay purchase into four equal payments spread out over six weeks, with zero interest payments or fees.
Corey Fugman, senior director of Apple Wallet and Apple Pay, said that users will be able to use Apple Pay Later without leaving the Apple Wallet.
“Upcoming payments are managed through Wallet, making it easy to keep track of what's due when and to stay within a budget,” he said.
When checking out via Apple Pay or Apple Wallet, users will be offered the option to apply Apple Pay Later.
Apple said that the new service will be hosted by Mastercard and will be available everywhere that Apple Pay is accepted, either in apps or online.
In September, Mastercard announced that it had launched Mastercard Installments' BNPL platform, a technical solution that allows banks to create their own BNPL solutions.
It is not yet clear if Apple will be partnering with a bank to supports its new BNPL drive, but a report from Bloomberg published in July last year suggested that Goldman Sachs would fulfil this role.
According to an insider, Goldman Sachs was the natural choice for Apple Pay Later, given that the two companies have already worked together on the Apple Pay credit card since 2019.
In March, Apple signalled its intention of developing more credit-based products with the announcement of the acquisition of UK fintech Credit Kudos for a reported $150m. Using machine learning, Credit Kudos is an open banking-based credit reference agency.
For developers and merchants, Fugman added that Apple Pay requires no additional integration. “It just works using their standard Apple Pay implementation,” he said.
Further integrating Apple’s Wallet at the heart of consumer shopping experience, the technology giant is also launching Apple Pay Order Tracking.
This will allow users to receive detailed receipts and order tracking information within the Wallet app for Apple Pay purchases from participating merchants.
Apple said the services will be offered to millions of merchants through e-commerce platforms, starting with Shopify.
It is also unclear what kind of regulatory landscape Apple Pay Later will come up against. In the US, unlike in other parts of the world, BNPL products are subject to a number of regulations depending on their business model.
At the state level, BNPL services are often regulated as consumer loans, while at the federal level they may fall under the jurisdiction of the Consumer Financial Protection Bureau (CFPB), which has the authority in non-bank consumer financial markets to write regulations, enforce laws and supervise companies in certain cases.
Last December, the CFPB said it was concerned about accumulating debt, regulatory arbitrage and data harvesting in relation to BNPL products, and opened an inquiry into the matter.
Additionally, in April, the CFPB invoked a largely unused legal provision that allows it to examine non-bank financial companies that pose risks to consumers.
These could include “larger participants” in non-bank markets, such as Apple, whose conduct has an impact on a wide range of consumers.
Last November, in light of the rapid growth of the US BNPL market, Congress held a hearing on its potential risks and benefits, but so far no legislative proposals have been filed to address potential consumer protection issues.
Digital ID
Aside from Apple Pay Later, iOS 16 will also see a range of new digital key and ID features added to the Wallet app.
This will allow users to present their ID, which is stored within the Wallet, for third-party apps that require identity and age verification.
To ensure privacy and security, Apple said that only the necessary information required for the transaction will be provided to the third-party app, and the user can review and consent to share it using Face ID or Touch ID.
“With Apple Wallet, we are working hard on our goal to replace your physical wallet,” said Fugman, noting that Wallet-stored driving licence ID cards are already available in Maryland and Arizona.
He said the first locations to accept Wallet IDs are selected Transportation Security Administration (TSA) security checkpoints, and that Wallet IDs aim to go live in 11 more states in the near future.
Another new feature in iOS 16 is shareable digital keys, which allow home, hotel, office or car keys stored within the Wallet app to be shared through apps such as Mail, Messages and WhatsApp.
“When your friend receives the key, they can add it to their Wallet with a single tap,” said Fugman.
“And to let you share keys with people who don't have an iPhone, we're working with the IETF [Internet Engineering Task Force] to make sharing keys an industry standard that is free for others to adopt.”
Apple has not yet set a date for the general release of iOS 16, but it has said that it will be available in public beta next month.
Tap to Pay on iPhone
Tap to Pay on iPhone, the final innovation introduced by Fugman in his WWDC presentation, is a new point-of-sale solution that allows merchants to accept contactless payments directly through an iPhone, with no additional hardware or terminal required.
Tap to Pay on iPhone will be launched initially through a selection of payment provider apps, including Square, Stripe, Chase, WorldPay and Shopify.
At Square, Tap to Pay on iPhone will be built into the Square Point of Sale app, which will also allow it to cross-sell other products to connected merchants, such as customer, inventory and revenue management tools.
This summer, Square is running an Early Access Program before launching publicly later this year.
Square said that Tap to Pay on iPhone aligns with its wider goal of democratising the in-person payments landscape and promoting flexibility both for merchants and customers.
Buyers will have the option to use contactless credit or debit cards, or digital wallets such as Apple Pay, to make purchases using Tap to Pay on iPhone.
“Bringing Tap to Pay on iPhone into the Square ecosystem ensures that new sellers will have another free option to get up and running, while providing businesses of any complexity with more flexibility to adapt their commerce experiences to evolving consumer preferences and changing industry trends.”
