Apple Inc on Tuesday launched its “buy now, pay later” (BNPL) service in the United States, a move that threatens to disrupt the fintech sector dominated by firms like Affirm Holdings and Swedish payments company Klarna.Thank you for reading this post, don't forget to subscribe!
The service, Apple Pay Later, will allow users to split purchases into four payments spread over six weeks with no interest or fees, the company said. It will initially be offered to select users, with plans of a full roll-out in the coming months.
Users can get loans between $50 and $1,000 for online and in-app purchases made on iPhones and iPads with merchants that accept Apple Pay, according to the company. More than 85% of U.S. retailers accept Apple Pay, the company said.
This will take a bite out of the market share of other players,” said Danni Hewson, head of financial analysis at AJ Bell. The company will roll out the product to some consumers this spring and will begin reporting the loans to credit bureaus in the fall.
BNPL (Buy now, pay later) firm Affirms shares fell more than 7%, while PayPal closed about 1% lower. In 2020, pandemic-related lockdowns turned shoppers to online payment platforms, bolstering demand for fintech companies offering BNPL (Buy now, pay later) services, especially to millennials and Gen Z customers.
The sector’s fortunes have since turned as rising interest rates and red-hot inflation dampened purchasing power and forced consumers to tighten their purse strings.
“We expect Apple to tread cautiously, especially in this macro environment,” said Christopher Brendler, analyst at D.A. Davidson, alluding to its decision to not use a partner and underwrite, fund, and collect on the loans directly.
Apple’s version, which is integrated with Apple Pay and facilitated by MasterCard, will require the consumer use a debit card and a bank account to make those payments, the company said, and will not charge flat or percentage late fees. Instead, missed payments will eventually result in the consumer losing access to these kinds of loans.
HOW DOES BUY NOW, PAY LATER WORK?
Branded as “interest-free loans,” buy now, pay later services require you to download an app, link a bank account or debit or credit card, and sign up to pay in weekly or monthly installments.
Some companies, such as Klarna and After pay, do soft credit checks, which aren’t reported to credit bureaus, before approving borrowers. This is how Apple’s product will operate as well.
Most users are approved in minutes. Scheduled payments are then automatically deducted from one’s bank account or charged to one’s card.
The services generally don’t charge more than a customer would have paid up front, meaning there’s technically no interest, so long as one makes the payments on time.
But if a customer pays late, they may be subject to a flat fee or a fee calculated as a percentage of the total owed. These can run as high as $34 plus interest. If a customer misses multiple payments, they may be shut out from using the service in the future, and the delinquency could hurt one’s credit score.
In Apple’s case, the company said there will be no late fees, either flat or as a percentage only the possibility of missed payments reported to credit bureaus, and a loss of access to the loans.
If a user wishes to defer payments, or set up a different payment plan, Apple said they can contact support. Several services allow users to defer payments in this way.
WHAT ARE THE OTHER RISKS?
Because there’s no centralized reporting of buy now, pay later purchases, those debts won’t necessarily appear on your credit profile with major credit rating agencies.
That means more companies may let you buy more items, even if you can’t afford them, because the lenders don’t know how many loans you have set up with other companies.
Elyse Hicks, consumer policy counsel at Americans for Financial Reform, a progressive nonprofit, said people may not consider seriously enough whether they’ll still be able to afford payments down the road.
“Because of inflation, people may think, ‘I’m going to have to get what I need and pay for it later in these installments,’” she said. “But are you still going to be able to afford the things you’re affording now six months from now?”
HOW WILL ECONOMIC INSTABILITY AFFECT BUY NOW, PAY LATER?
As the cost-of-living increases, some shoppers have started breaking up payments on essentials, rather than just big-ticket items like electronics or designer clothes.
This points to the rising number of delinquent payments as a sign that buy now, pay later could already be contributing to unmanageable debt for consumers.
Apple iPhone 15: All rumors and more
Apple fans are eagerly waiting for the next iteration of company’s flagship phone- iPhone 15. As with any other highly anticipated phones, rumours have been swirling about what features and upgrades could iPhone 15 bring to the table. Some of the most talked-about possibilities include a USB-C port, A16 chipset, and a no notch display.
While these are only rumors and should not be taken seriously until there’s an official confirmation, Apple is expected to make some serious changes to its upcoming lineup of phones this time. The company didn’t make many changes in the current flagship series including use of same processor in the non-Pro models of iPhone 14 and no serious camera upgrades.