Entering an existing and hotly contested area of business is never usually a deterrent to Apple
changes included insisting lenders conduct affordability checks to make sure customers can pay for loans, as well as tightening the rules around the promotion of BNPL products. The government also said it wanted lenders to be approved by the Financial Conduct Authority (FCA), and that the Financial Ombudsman Service (FOS) should process complaints from consumers.
Many feel that BNPL services, as with other credit facilities, require proper regulation. However, getting there is a long-winded process. The intention was that the proposals outlined above would be part of legislation to be passed sometime in the middle of 2023. The FCA would then consult on its rules for the BNPL industry. Given the change in UK prime minister, there is no guarantee that this timetable will be followed. The potential shift in regulatory landscape may be among the reasons we have not seen a UK launch of Apple Pay Later planned.
Furthermore, Apple has always initially launched its financial products in the US. It has a relationship with Goldman Sachs, with the bank serving as the issuer for the Apple Card. In July, Bloomberg News reported that the bank would also be the lender behind Apple Pay Later.
This all means we may not see Apple move to offer such wide-ranging BNPL facilities in the UK for a while. However, an expansion of Apple’s financial services does seem inevitable, eventually. As far back as March 2019, Goldman Sachs International CEO Richard Gnodde was telling US business outlet CNBC: “With that product [Apple Card] we are going to start in the US, but over time, absolutely, we will be thinking of international opportunities for it.”
This has not happened yet, but must still be part of the thinking of executives at both the bank and Apple. Although the two are not directly connected, it would be unsurprising if an expanded rollout of Apple Pay Later were to happen alongside the launch of Apple Card beyond North America.
Later launch?
The BNPL market is already competitive. As well as Klarna, PayPal also has an offering, and there are other services such as Affirm. Entering an existing and hotly contested area of business is never usually a deterrent to Apple. Quite the opposite, in fact. There are many examples of the company coming in and displacing incumbents – there were MP3 players before the iPod, smartphones before the iPhone. On the services side there were already popular streaming services, but this did not stop the launch of Apple TV+.
There are also clear reasons why the company specifically created Apple Pay Later and continues to be interested in offering more financial services. As with all its other services, facilities such as Apple Pay encourage users
both to enter the Apple ecosystem and to stay there. This, ultimately, goes towards driving sales of iPhones, Macs and other Apple hardware products.
Furthermore, Apple takes a cut of any transaction conducted using Apple Pay, providing a lucrative and ongoing revenue stream for the company. In the quarter ending July 2022, the company brought in a total of $19.6 billion in revenue from across its range of services, a 12% year-over-year increase.
Other finance options
For consumers without access to Apple Card or Apple Pay Later, there are other facilities the company already offers to help finance your next iPhone or Mac. The most straightforward is via trade-ins. If you have an old Apple product, the company will take it and offset its value against the cost of the new one. At the time of writing, someone wishing to trade-in an iPhone 12 Pro could get up to £440 off the cost of their new device, depending on the size and condition of the trade-in model. Trade-ins not only help make new products a little more affordable, it means that older products can be recycled in various ways instead of just collecting dust in a drawer.
Apple also already allows users to spread out the cost of purchasing its own products by paying monthly. For example, at the time of writing, a customer in the UK can buy an iPhone 13 Pro and pay from £39.54 a month over a 24-month period. This can be combined with trade-in, meaningfully reducing the monthly cost of a new device. Apple does not apply interest to monthly payments. Apple Pay Later expands the ability to spread out payments to all Apple Pay transactions in the US, whoever the vendor is, and does so in a more time-limited fashion.
With even higher-value items, such as a Mac, there are other financing options. In the UK these come via Barclays or PayPal Credit. The Barclays option allows for up to 36 monthly payments; with PayPal it’s up to 24 months. Both charge interest on those transactions though, making the overall cost of the device more expensive.
The key question, as Apple expands its financial services, is does a consumer goods and services company really want to operate like a bank too? The answer, for now, seems to be no. All the financial products it currently offers are done in conjunction with an existing finance or payments company and this seems to be working. Indeed, in August 2022, Apple Card and Goldman Sachs were ranked number one for customer satisfaction in the Midsize Credit Card Issuer category in the JD Power 2022 US Credit Card Satisfaction Study. It is the second consecutive year it has come out on top in this particular study. The response to the accolade from Jennifer Bailey, Apple’s vice president of Apple Pay and Apple Wallet, underlined the company’s interest in the sector. “We remain committed to providing a digital-first credit card that helps customers lead healthier financial lives, and we look forward to continuing to deliver innovative financial tools and award-winning customer satisfaction to our Apple Card users,” she said.
Apple does, however, like to bring a lot of what it does in-house, so a change in approach is possible in the future. As this happens, Apple will take on greater financial and PR risk. Cupertino would not like stories about customers facing hardship should they struggle to make payments. The success of such moves will be hard to judge too, as it is unlikely we will ever get a clear breakdown of who uses Apple Pay Later and what the fallout for those users’ wider finances are.
As Apple Pay Later gets rolled out, the ultimate question is whether having such a facility so readily available drives more consumers into the kind of “spiral of debt” Dame Clare of Citizens Advice warned about, or helps them better manage their finances, as Apple hopes.