Apple/BNPL: giant’s scale protects it from perils of a shaky industry


The fee-for-service business is better than the lending industry. Apple, with a user base of around 1bn people, has the luxury of picking which to join. The iPhone giant has therefore announced Apple Pay Later. This attempt to crack the “buy now, pay later” consumer finance sector would steer clear of credit risks and banking regulation.

BNPL start-ups such as Klarna, Afterpay and Affirm reached dizzying heights by challenging traditional credit card incumbents. But worries about high overheads, untested underwriting standards and dwindling consumer demand have sent their valuations crashing. Apple’s launch timing is curious.

So far, the details of Apple Pay Later’s plumbing are scant. What is clear is that Apple’s ubiquity as a consumer products business solves many of the problems inherent in building a retail financial dynamo.

Apple debuted a credit card a few years ago called Apple Card. The engine for that application is Goldman Sachs. It is the underlying issuing bank that bears credit risks. Apple provides its formidable brand and technology and earns a cut of fees on transactions.

Total services revenue at Apple hit nearly $70bn in its fiscal 2021. But core underwriting and credit risk belongs to Goldman Sachs, a firm that has eagerly built a deposit-taking and lending operation as a diversification away from investment banking. 

BNPL upstarts have tried to position themselves as tech-driven disrupters. But to grow they have to resemble financial institutions and rely on wholesale credit and securitisations to fund explosive growth. These businesses also sell and hold loans which necessitate balance sheet risk.

Goldman Sachs would reportedly provide the lending muscle for Apple Pay Later. That suggests Apple Pay Now would resemble the existing Apple Pay app. This would allows iPhone users to link an existing credit card to their phone.

The device conveniently facilitates the transaction. with Apple earning a tiny transaction fee. The scale of Apple and Goldman Sachs in their respective industries means the tech company would avoid the lending arena and its pitfalls. The debut would worsen the competitive position of BNPL start-ups.

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