Apple is financing all the lending for the Apple Pay Later service

AppleInsider

"Apple Financing LLC," has obtained state lending licenses and will operate independently from the main corporate entity to power the newly announced Apple Pay Later service.

Introduced at WWDC 2022, Apple Pay Later gives users who are conducting a transaction through Apple Pay to split the cost into four payments over six weeks. The service charges no fees or commissions.

To power the service, Apple has established a wholly-owned subsidiary. It has spun off Apple Financing, LLC, to handle the lending.

This marks the first time that Apple has incorporated loans and credit assessments among other financial businesses into the firm, according to a report by Bloomberg.

The report added that Apple has been moving many of the financial services offered under the Apple brand "as part of a 'secret initiative'" the company internally calls "Breakout." The initiative is also slated to power the rumored upcoming device subscription program that splits the cost of new hardware into smaller month installments.

While interest-free lending is not directly a source of profit from the consumer, there are two avenues of cashflow the company will rely on. First, will be easier purchase of Apple hardware by consumers, paid with monthly installments outside of a traditional credit card.

The second profit avenue is transaction fees for each pay-as-you-go transaction that will be applied to the merchant. It's not yet clear what these fees will be, or if they will be in line with existing credit card merchant fees.

After years of partnering with credit card companies for Apple-only transactions, the company's first foray into payment tools was in September 2014, with the introduction of Apple Pay. The company then entered the credit card business in March 2019 in the launch of Apple Card, a culmination of a partnership with banking services firm Goldman Sachs.

Read on AppleInsider

doozydozen

That’s actually wild. I thought Apple would have a banking partner handling the debt like Goldman Sachs

macxpress

I don't know if Apple has the money to do this. /s

Beats

Wait is Bank coming?

I remember people seriously suggesting this  when ApplePay was announced. 

Xed

repressthis said:

That’s actually wild. I thought Apple would have a banking partner handling the debt like Goldman Sachs

They are still working with GS in some regard for APL (Apple Pay Later).

TJJ

The New B of A. Bank of Apple. No longer Bank of America.

Bank of Apple! I’d open an account in a heartbeat! They already have all of my information on their devices. And, I’ve spent thousands on apps, music, movies etc.. through the App Store and iTunes. If they have the capital, then do it! You know that your accounts will be under heavy security and protection. It’s a start! I support them! Tim Cook is brilliant!

8thman

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

anantksundaram

Apple is lending its creditworthiness. There's plenty left. 

This one will be big, five years from now. 

anantksundaram

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

Good companies -- and good investors -- don't make long term decisions based on the "current financial environment."

Think about the ones who said that in 2008-09 (S&P bottomed out at 666 then, it's now over 6x that). For example, Tesla (under Musk) started during those years. Look where its market cap is now. 

george kaplan

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

No, this is a move to snare a sector of the market which can’t/won’t get a credit card like the Apple Card to make the purchase of the next accessory or iPad. With transactions capped at $1K, Apple takes little risk on defaults, while building relationships with customers who may grow into Apple Card customers, expanding their creditworthiness into iPhone to MacBook Pro range.

All of this builds transactions which don’t cost Apple 3% to 6% in processing fees from the credit card companies. While that may seem trivial, scale that up to tens of millions of dollars in transactions and the savings become significant. It also gives additional experience and data to Apple as it continues to build out a fintech division—one that might be responsible for car sales/leasing in a few years.

leighr

Stand by for Samsung Pay Later, closely followed by Google Pay Later. 

dewme

This seems like a nice enticement to get more people using Apple Pay. I’m sure that Apple will have all of its ducks in a row on the financial and regulatory side before they go live. 

My only qualm about this is a subtle concern that Apple is starting to look more like a conglomerate and falling into a pattern not unlike that of GE. I still think of Apple as a technology-first company but their forays into movies, financial services, entertainment, etc., are a little bit less technology-first than I’d prefer. They’ve also reduced their footprint in other technology areas like networking. I guess I shouldn’t worry until Apple spins-up a plastics, nuclear power, aircraft engines, large scale financial capital services, etc., business units under the Apple name.  

Why the concern about an Apple conglomerate? Potential loss of focus on their traditional product lines and concerns that it makes them an even bigger target for those who are trying to break up and take down “big tech.” 

xbit

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

Klarna are in serious trouble, with widening losses. While short-term loans of this nature can be helpful in emergency situations, that's not what they're being used for by-and-large. For example, half of Klarna's customers who have defaulted on their payments have done so after purchasing fashion goods.

It's a grim situation. This style of lending is morally objectionable and Apple should be ashamed for entering the market. 

foregoneconclusion

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

It's not really just "inflation". It's inflation + massive price gouging by the corporate sector. Profits are way above what you would expect if companies were really just trying to cover increased costs with the increased prices. It's essentially a form of profiteering that has arisen during the pandemic. 

larryjw

This maybe Apple’s attempt to deal with the changing financial environment. 

India put into place regulations which prevented a functional subscription model.

There is crypto. There is FedNow. There is coming Central Bank Digital Cash. And similar from other countries.

It makes sense for Apple to split out a separate entity to deal with changing landscape. 

mjtomlin

TJJ said:

The New B of A. Bank of Apple. No longer Bank of America.

Bank of Apple! I’d open an account in a heartbeat! They already have all of my information on their devices. And, I’ve spent thousands on apps, music, movies etc.. through the App Store and iTunes. If they have the capital, then do it! You know that your accounts will be under heavy security and protection. It’s a start! I support them! Tim Cook is brilliant!

Not to nitpick here, but it's actually "You already have your information on your Apple devices." While Apple does have purchasing and account information stored on their servers - as any merchant would - they have been extremely careful about what data of yours they actually need to see and as such have been applying end-to-encryption anywhere and everywhere they can, so that your information and data is only accessible by you and those you grant permission to.

jcs2305

xbit said:

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

Klarna are in serious trouble, with widening losses. While short-term loans of this nature can be helpful in emergency situations, that's not what they're being used for by-and-large. For example, half of Klarna's customers who have defaulted on their payments have done so after purchasing fashion goods.

It's a grim situation. This style of lending is morally objectionable and Apple should be ashamed for entering the market. 

Apple will run a soft credit check to ensure that borrowers are capable of paying back the loans, which will likely be capped at around $1,000, the company said. If Apple Pay Later loans aren’t repaid, then Apple will no longer extend those users credit. But the company said it won’t report the missed payments to credit bureaus.

https://www.cnbc.com/2022/06/08/apple-will-handle-lending-for-apple-pay-later.html

Soft pull before they extend the credit..If you mess up once you are done... and they won't report the debt to the credit bureau's if you don't pay them back? What other service operates this same way? 

george kaplan

xbit said:

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

Klarna are in serious trouble, with widening losses. While short-term loans of this nature can be helpful in emergency situations, that's not what they're being used for by-and-large. For example, half of Klarna's customers who have defaulted on their payments have done so after purchasing fashion goods.

It's a grim situation. This style of lending is morally objectionable and Apple should be ashamed for entering the market. 

This is not the same think as Klarna, which imposes a fee on top of the price of the goods and any merchant fees. 

Apple stated clearly there would be no interest or hidden fees. Price + tax, divided by 3 = the amount of the three payments the client makes every 2 weeks. It is pretty easy to figure out if one can cover this 3x payment over a 6-week period. 

There are folks with poor credit, or so much debt (like student debt) that they’re not going to qualify for a credit card. But if they can cover 3 payments over 6 weeks, Apple will front them the money. 

BTW, a hefty percentage of Klarna complaints are from those who bought foolishly (like some trendy clothes), then had a financial reversal and couldn’t cover all of their 4 payments.  Some defaults may have been premeditated, since Klarna previously didn’t report to credit bureaus and just wrote off the loss, but now it does. That may slow the rate of intentional defaults. 

davidw

george kaplan said:

xbit said:

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

Klarna are in serious trouble, with widening losses. While short-term loans of this nature can be helpful in emergency situations, that's not what they're being used for by-and-large. For example, half of Klarna's customers who have defaulted on their payments have done so after purchasing fashion goods.

It's a grim situation. This style of lending is morally objectionable and Apple should be ashamed for entering the market. 

This is not the same think as Klarna, which imposes a fee on top of the price of the goods and any merchant fees. 

Apple stated clearly there would be no interest or hidden fees. Price + tax, divided by 3 = the amount of the three payments the client makes every 2 weeks. It is pretty easy to figure out if one can cover this 3x payment over a 6-week period. 

There are folks with poor credit, or so much debt (like student debt) that they’re not going to qualify for a credit card. But if they can cover 3 payments over 6 weeks, Apple will front them the money. 

BTW, a hefty percentage of Klarna complaints are from those who bought foolishly (like some trendy clothes), then had a financial reversal and couldn’t cover all of their 4 payments.  Some defaults may have been premeditated, since Klarna previously didn’t report to credit bureaus and just wrote off the loss, but now it does. That may slow the rate of intentional defaults. 

This is somewhat similar to what the video electronic store I bought my laser player from, was doing in the 80's. I think even GoodGuys and Circuit City was doing it. They would offer 6 months (or even 1 year) to pay with no interest, on certain high priced items. But the catch was that if you didn't pay off the whole amount in time, you had to pay all the accumulated interest on the portion you still owe every month. And that could be up to 6 months (or a year) worth.   
 
E.I., when i bought My $1200 top of the line Pioneer laser player, I had 6 months to pay for it, interest free. I could make payments of any amount for each month, choose to pay it all off in 2 or 3 or 4 months and even not make any monthly payments at all and pay it all off on the 6th month. I get a statement every month (in the mail) stating the amount I still owe, the interest on that for the month, plus the interest accumulated every month from the time i made the purchase. But so long as I pay off the whole amount in 6 months, I don't have to pay any of the interest. Plus, one still had to have a CC, as after 6 months and it's not paid off, they billed your CC on file, for what you still owe plus all the accumulated interest.

Consumers were warned to make sure they pay off the whole amount in time. Many thought that "6 months interest free" meant that they would owe interest only the portion they didn't pay off after 6 months and that the interest started after the "6 months interest free" period was over. But they way it worked was that even if you didn't pay off $20 on a $1000 purchase in time, they would bill your CC $20 and what might be $50 worth of accumulated interest since the purchase.   

danox

xbit said:

8thman said:

This is risky in the current financial environment.
Inflation is taking a toll on consumers and some will start defaulting on payments. Timing of this is not good.

Klarna are in serious trouble, with widening losses. While short-term loans of this nature can be helpful in emergency situations, that's not what they're being used for by-and-large. For example, half of Klarna's customers who have defaulted on their payments have done so after purchasing fashion goods.

It's a grim situation. This style of lending is morally objectionable and Apple should be ashamed for entering the market. 

You will own nothing and be happy everything seems to be going down to that road.