The news that Apple would offer its own "buy now, pay later" service splitting any Apple Pay bill into installments hit the fintech lending world like a thunderbolt. But it turns out the new feature, while simple for consumers, necessitated a bit of backstage reorganizing at Apple, including a whole new subsidiary that will run it.
The new feature, called Apple Pay Later, lets users pay for purchases with four equal payments made every two weeks, with no interest or fees. This type of "bill me later" type payment has been popular lately as an addition to online retail at checkout, where companies like Affirm and Klarna offered easy ways to overcome "confirm order" hesitancy with similar schemes.
The thing is that Apple is a consumer tech company, and lending and credit are financial services, part of an industry with its own separate rules and regulations. There are standards for these things that mean an organization needs to meet certain requirements to have its issued loans insured, be eligible for certain interest rates and so on.
While Apple has partnered with payment providers and others on the financial side of things before in order to make Apple Pay and Wallet work, Pay Later represents the first time the company is handling the actual loans, risk management and credit checks itself. This may come as little surprise to anyone watching Apple's recent moves in fintech, adding a contactless card payment option for iPhone-based checkout and then paying some $150 million for the British banking startup Credit Kudos in March.
In order to do it internally, Apple had to form a fully owned but separate subsidiary called Apple Financing LLC, Apple confirmed to TechCrunch after Bloomberg first reported the news today. This company will be doing the actual work of assessing and issuing credit in compliance with the usual requirements and obtain the necessary licenses to work in each regulatory jurisdiction. And of course if everything goes up in flames, only the LLC burns down.
It's important to note that Apple did not get a bank charter for its new Financing LLC — though banks are often lenders, the reverse is not always true. It's partnering with Goldman Sachs as the Mastercard credential provider rather than take on that role itself, and Pay Later uses the Mastercard Installments program as its basis.
To sign up, you'll need a debit card — can't pay down credit with more credit. And Apple said it will conduct a "soft" credit pull to make sure you're all good in the eyes of the all-seeing, all-deciding credit gods without setting off any alarms.
The new feature is expected to cause a serious shift in the payments world, as several BNPL startups are highly valued. But Apple will take an enormous bite out of their business with Pay Later; even if there are many businesses that don't take Apple Pay and wish to include installment plans, there will be competitive pressure to match Apple's minimal conditions and cost to merchants. Expect serious changes to this corner of fintech soon.