Apple Is Digging Into Its Massive Cash Pile To Fund New Pay Later Service

Enlarge / Pay Later was announced during the WWDC keynote on June 8th.

Apple

Apple is making its biggest move into finance by offering credit directly to consumers for its new Buy Now, Pay Later product and taking on a role played in its other lending services by banking partners like Goldman Sachs.

Short-term loans made through the iPhone maker’s new Apple Pay Later service, announced Monday, will be issued through a wholly-owned subsidiary, Apple Financing LLC, the company said.

Apple Pay Later is being accepted by the millions of US merchants already using the iPhone’s mobile and online payments service, giving it a wide reach and an enviable customer base who can already afford to head towards the company’s latest smartphone put.

Big Tech’s entry into core banking has long been feared on Wall Street after years of an uncertain alliance in areas like mobile payments. In the past, Apple has worked with Goldman to issue a credit card in the US, and with banks like Barclays in the UK to offer financing to buy its own devices.

However, the role of these banks is diminished in its latest financial product.

Goldman is facilitating Apple Pay Later by allowing Apple to access MasterCard’s network, since the iPhone maker isn’t licensed to directly issue payment information. But Apple handles underwriting and lending through its new subsidiary.

In a statement, Goldman said it was “excited about our partnership with Apple, which continues to grow.”

The facility will allow Apple to earn interchange fees from every transaction, give the company more control over data and help accelerate the international expansion of its financial products. However, if a customer does not repay the loan, Apple has to accept the loss.

Apple has previously launched other online services like Apple Music, iCloud, and TV Plus in dozens of countries concurrent with launches in the US or shortly thereafter, but the expansion of its financial services has been slower. Currently, the Apple Card is only available in the US.

Though the company declined to disclose its specific funding mechanism, Apple can easily afford to lend from its own balance sheet, particularly for short-term borrowing. According to its latest quarterly results, the company had $73 billion in net cash at the end of March.

The Buy Now, Pay Later service is the latest addition to a growing suite of Apple financial services, all managed through the Wallet app that comes preinstalled on every iPhone.

Apple Pay, which debuted in 2014, allows iPhone and Apple Watch owners to use credit and debit cards by connecting their devices to wireless readers in stores. In 2017, Apple added the ability for users to make peer-to-peer payments through a service called Apple Cash.

Apple said it sees no need to apply for a banking license at this time.

Several tech companies, including Amazon, PayPal, Stripe, Shopify, and Block — formerly known as Square — offer financing to small businesses that sell through their platforms. However, few big tech groups, alongside specialist fintech firms like Klarna and Affirm, have given consumers loans for general purchases, as Apple plans to do.

Buyers of Apple’s high-end devices tend to have higher incomes than other tech buyers, which means they pose less credit risk. Apple may also use customer data, e.g. For example, how long users have owned an iPhone or how often they buy apps from the App Store to determine if a customer has a good reputation.

Apple said its decision to go it alone was made in part to avoid sharing personal information with third parties. The company, in line with Klarna and Affirm, does not charge late payments, but limits access to further short-term credit.

In March, Apple bought UK-based fintech Credit Kudos. The startup is using machine learning to create an alternative to traditional credit scores, which have been criticized as a way to accurately assess a consumer’s finances.