Apple’s expansion into consumer finance took another significant step with the introduction of Apple Pay Later, its buy now, pay later offering. Unlike many technology companies that rely primarily on financial institution partners to provide lending products, Apple planned to fund Apple Pay Later loans directly from its own balance sheet while taking responsibility for credit decisioning. The Apple BNPL strategy represented a notable expansion of the company’s role from facilitating payments to assuming direct financial risk.
The timing also made the move particularly noteworthy. Apple was entering consumer lending as inflation, rising interest rates, and rapid BNPL growth raised questions about credit performance and borrower risk. Although Goldman Sachs and Mastercard would continue to provide important infrastructure supporting the product, Apple’s willingness to fund loans and make credit decisions suggested broader ambitions in financial services. It also raised questions about whether lending was simply another addition to Apple’s payments ecosystem or the beginning of a much larger push into banking and merchant services.
Interesting times at Apple, as a crowd of fintech analysts forms to see how far Apple will wade into the deep end of the finance and banking lending pool. In the tech giant’s most recent announcement, they announced that loans initiated under the new Apple Pay Later BNPL product would be funded directly by Apple with the estimated $73 billion in cash they have on their balance sheet. In addition, Apple announced that they will also perform all credit decisioning through the newly-acquired Credit Kudos platform. The BNPL loans will be initiated through the Goldman Sachs platform using the Mastercard Installments product, and while not directly stated, it is presumed that Goldman will continue to handle all the operational and service aspects of both Apple Card and Apple Pay Later.
It is interesting to note that Apple is not starting this with their own products or in their own stores; Apple Pay Later will be available to any Apple cardholders at any merchants where they currently use Apple Pay or their Apple Card. As a tech company with no consumer lending experience, to go long in this environment amounts to a brisk walk through the shallow end of the pool and then ducking under the rope-and-floats to where it starts to get deeper. With BNPL loan volume soaring to what many credit analysts predict will be unsustainable levels, along with inflationary pressures and rising interest rates, this is one of the riskiest markets to launch a new a consumer lending product, especially for a company with no experience in the area.
This move into lending also makes us wonder if Apple really is going to establish themselves as a payfac to offer merchant services to iOS device uses, like Square (now a division of corporate parent Block) did when they pioneered their audio jack card reader over 10 years ago.
The Apple BNPL strategy illustrates how the company is gradually taking greater control over financial activities that have traditionally been handled by banks and other financial institutions. Funding Apple Pay Later loans and assuming responsibility for credit decisions moves Apple beyond providing the technology and customer interface and into areas where it bears more direct financial risk.
How successfully Apple manages that risk could influence its next steps. If Apple can translate its payments expertise and enormous customer ecosystem into successful consumer lending, additional financial services could follow. Combined with its expanding payment acceptance capabilities, Apple’s evolution raises a larger question for the industry: how much of the traditional banking and payments value chain does the company ultimately intend to control?
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group
