Apple’s “buy now, pay later” policy further intensifies competition in the financial market

Apple’s “buy now, pay later” policy further intensifies competition in the financial market. Apple Pay Later is a payment method that helps users pay in installments. Financial services can also be said to be payment methods. Apple’s “buy now, pay later” policy further intensifies competition in the financial market. Apple’s “Buy Now Pay Later” policy further intensifies competition in the financial market 1

At last week’s WWDC22, Apple announced its entry into the crowded “Buy Now Pay Later” (BNPL) field. Putting pressure on financial technology companies in the industry.

Apple announced that it plans to launch an “Apple Pay Later” loan service to expand a series of financial services products that already include mobile payments and credit cards. The service, nicknamed "Apple's version of Huabei," will allow users to pay in four interest-free installments.

Not only does it provide technical services on the application, Apple has also become a specialized subsidiary - Apple Financing Inc., which conducts credit reviews and loans for users.

The subsidiary operates separately from Apple and has all necessary state-level lending licenses, marking the first time Apple has integrated financial operations such as lending and credit assessment into the company.

With the entry of a giant with a market value of more than 2 trillion, and the blessing of the iPhone, how many customers will Apple attract? This puts BNPL companies like PayPal, Affirm and Klarna in an awkward position. Affirm shares fell 17% last week on the news.

Not only the giants have entered the game, the BNPL market has already shown signs of trouble. Last month, Sweden's Klarna laid off 10% of its global workforce over fears of a recession.

Reduced consumer spending, rising interest rates and worsening credit conditions are reportedly causing trouble for BNPL service providers and increasing the likelihood of consolidation in the industry.

According to data from the consulting agency GlobalData, BNPL is one of the fastest-growing market segments in consumer finance, with transaction volume reaching US$120 billion in 2021, much higher than the US$33 billion in 2019.

The business model of BNPL was born in a low interest rate environment, which allows BNPL companies to raise funds at a lower cost and provide "point-of-sale" loans to users on shopping websites.

Buy now, pay later, as the name suggests, is a method that allows users to place an order first and then pay after the goods arrive. Consumers can pay in installments over weeks or months, often interest-free, while BNPL companies charge online retailers a fee per transaction.

During the epidemic, as e-commerce transaction volume soared, the BNPL model became popular among young consumers. GlobalData data shows that $2 of every $100 of e-commerce spend last year was done through BNPL.

But as the environment that drove its explosive growth (e.g. the epidemic) comes to an end, the industry is facing a reckoning, with consumers cutting back on spending and rising interest rates pushing up BNPL’s financing costs and squeezing its profits. Rate. According to data from 451 Research, an authoritative research organization, there are more than 100 BNPL companies in the world.

Apple’s entry into BNPL will further intensify market competition. In fact, the news has briefly hit the share prices of several listed companies, such as Firm Holdings, the largest BNPL company in the United States, and Australia's Zip and Sezzle.

The stock prices of these companies have already been under pressure. Firm Holdings shares are down about 75% this year. Elsewhere, shares of Block, the payments company of Twitter co-founder Jack Dorsey, fell about 48%.

In January this year, Block completed its acquisition of Australian BNPL provider Afterpay. Apple’s “buy now, pay later” model further intensifies competition in the financial market 2

In July last year, Bloomberg broke the news that Apple intended to enter the “buy now, pay later” market and partnered with Goldman Sachs to pilot a trial called Apple Pay in the United States. Later’s installment plans.

At last week’s WWDC conference, Apple brought this service to everyone based on iOS16, and it was unveiled as an Apple Pay service together with the previously promoted Tap to Pay.

Apple Pay Later is a financial service that helps users pay in installments. It can also be said to be a payment method. You only need to select this option when paying through the "Wallet" app. With this service, users can defer payments in four installments, interest-free for up to six weeks.

Existing foreign media found that regardless of whether the user has purchased Apple products before, they have set some terms for consumers. For example, the service only allows users to pay in installments of $1,000.

The Wall Street Journal pointed out that even after the official version of iOS 16 is launched to all users, Apple will limit the loan amount to $1,000. Apple will reportedly run background checks on people using their Apple IDs and other sources to see if they qualify for borrowing money.

If these customers have a bad history, Apple Pay Later may directly refuse to provide services to them.

In addition, even if you are eligible to use this feature, there is almost no benefit, because most Apple products are expensive, and Apple will only provide a $1,000 credit, and users can only choose an iPhone at most. 13 Pro or the base version of the M1 MacBook Air.

The new service will compete with similar services from Affirm and PayPal. Later this year, when Apple releases the new iOS 16 iPhone software, users will be able to use the Apple Pay service to purchase products and pay the remaining balance in four equal installments within six weeks, a "buy now, later" option. Payment” (BNPL) service.

Apple has entered into a partnership with Mastercard, which engages with suppliers and offers a white-label BNPL product called Installments, which Apple is using. Apple said Goldman Sachs Group Inc., which issued the Apple Card, was also the technical issuer of the loans, but that Apple would not use Goldman Sachs' credit decisions or its balance sheet to make the loans.

Foreign media believe that Apple Pay Later mainly wants to attract users to use Apple Pay for shopping. However, unlike ordinary Apple Pay, Apple Pay Later does not use the credit card bound to Wallet to make purchases. Apply for a loan directly from Goldman Sachs or other relevant financial institutions through Apple Pay, and repay it in 4 interest-free installments within two months of purchase.

Judging from previous revelations, Apple internal employees call this solution Apple Pay in 4. If an order costs more, users may need a longer repayment period, so Apple will also have a long-term payment plan called Apple Pay Monthly Installments.

Apple believes that the ApplePay Later service will help promote and use Apple Pay, and will receive a certain percentage of revenue from each purchase, which is estimated to bring more than $50 billion in additional service revenue each year.

Apple’s “buy now, pay later” policy further intensifies competition in the financial market 3

Apple’s handling of Apple Pay Later is more than just setting up a subsidiary. It is said that this financial service will use customers’ Apple IDs and related data. To minimize the chance of fraud and loss. Most financial companies that offer buy now, pay later services use third-party credit reports to determine their ability to extend credit to new and existing customers. But as Apple enters the space, the iPhone maker will take a different approach.

For Apple Pay Later, a subsidiary called Apple Financing LLC has been established to give Apple more direct control over the service. However, as a wholly owned subsidiary, Apple is also able to provide the subsidiary with information that it would not necessarily provide to third parties, such as its existing relationship with Goldman Sachs for the Apple Card.

People familiar with the plan told the Wall Street Journal that in addition to the traditional credit reporting system, Apple Pay Later will leverage Apple’s own platform in a variety of ways. This will include using historical data from Apple IDs to verify a user's identity and prevent fraud.

Applicants with Apple IDs who have been in good standing over time and don't appear to have any signs that they will commit fraud will be more likely to be accepted into the service.

By doing its own checks using data it manages directly, Apple feels confident enough in itself to be a lender and no longer has to defer to third-party companies. Sources say Apple was concerned about the reputational risk of becoming a lender when it created the Apple Card, so it chose to work with Goldman Sachs.

Today, several years later, Apple is now said to be more comfortable with the prospect, especially since the transactions it will process are relatively low value and short-lived, while also including $1,000 Payment plan caps, although the final amount will still be subject to the usual credit checks.

Customers will also be asked to link their debit card to the account, with payments automatically deducted from their bank account every two weeks, unless the customer opts out.