14/07/21; Australian Financial Review

The buy now, pay later system could convince more users to use their iPhone to pay for items. 

 

Apple is working on a new service that will let consumers pay for any Apple Pay purchase in instalments over time, rivalling the “buy now, pay later” offerings popularised by services from Affirm Holdings and PayPal.

The upcoming service, known internally as Apple Pay Later, will use Goldman Sachs as the lender for the loans needed for the instalment offerings, according to people with knowledge of the matter. Goldman Sachs has been Apple’s partner for the Apple Card credit card since 2019, but the new offering is not tied to the Apple Card and does not require the use of one.

The buy now, pay later system could help drive Apple Pay adoption and convince more users to use their iPhone instead of standard credit cards to pay for items. Apple receives a percentage of transactions made with Apple Pay, driving additional revenue to the company’s more than $US50 billion ($67 billion) a year services business.

The service is planned to work as follows: When a user makes a purchase via Apple Pay on their Apple device, they will have the option to pay for it either across four interest-free payments made every two weeks, or across several months with interest, one of the people said. The plan with four payments is called “Apple Pay in 4” internally, while the longer-term payment plans are dubbed “Apple Pay Monthly Instalments“.

When making purchases through an Apple Pay Later plan, users will be able to choose any credit card to make their payments over time. The service is planned to be available for purchases made at either retail or online stores. Apple already offers monthly instalments via the Apple Card for purchases of its own products, but this service would expand that technology to any Apple Pay transaction.

The interest rates that Apple plans to charge for the monthly instalments could not be learnt. Affirm charges as much as 30 per cent APR, while other companies charge less. The interest-free four instalment plans would rival similar systems such as ones from Afterpay, Klarna Bank and Sezzle in addition to PayPal’s popular Pay in 4 service.

Affirm fell as much as 13 per cent on the news, while PayPal declined about 1.4 per cent. Users who want to use the Apple Pay Later service will need to be approved via an application submitted through the iPhone’s Wallet app, where they will also be able to manage their payments. Users will need to submit a copy of their local ID card to apply for the program. Apple will also offer customers the ability to exit payment plans to pay off their purchase balance.

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At least some Apple Pay Later plans will also exclude late fees and processing fees, costing users only interest for longer-term plans. The service will also not require running a credit check on the user. Separately, the company is also testing a feature that will let users create temporary, digital Apple Pay Later credit cards for individual purchases.

Apple’s new service is still in development and its features could change or be cancelled, the people said. Representatives for Apple and Goldman Sachs declined to comment.

On an earnings call earlier on Tuesday, Goldman chief financial officer Stephen Scherr said he believed there were “more opportunities to be had with Apple”. Goldman’s alliance with consumer darlings such as Apple is aimed at helping it find a footing in the world of consumer banking – an expansion it has sought in recent years to spread its reach beyond the world of high finance on Wall Street.

Apple’s iPhone-based payment service is accepted at 85 per cent of all US retailers, according to the company. The new service would mark one of the largest additions to the service since its launch in 2014, following other features like peer-to-peer payments. Apple last year acquired a company that developed technology to allow phones to receive payments by tapping another phone or credit card on its back, adding another potential feature to the Apple payments road map.