OBSERVATIONS FROM THE FINTECH SNARK TANK
Apple launched its “buy now, pay later” (BNPL) service in the US to compete for the more than $100 billion in purchases Americans make using this payment method.
The service, named Apple Pay Later, will allow users to split purchases into four payments spread over six weeks with no interest or fees. Initially offered to select users, Apple plans a full roll-out in the next few months.
Apple Pay Later will be enabled through the Mastercard Installments program, with Goldman Sachs as the issuer of the Mastercard payment credential.
Providing consumers with the ability to make purchases they might not have afforded otherwise—and doing so, potentially, with no fees or interest payments—is a definite win for consumers. Helping to enable sales that might not have happened otherwise is, likewise, a win for the merchants.
Apple has about 50 million Apple Pay users and 6.5 million Apple Card holders. Driving buy now, pay later purchases with Apple Pay users will help Apple identify potential Apple Card converts to grow that business.
That’s an odd perspective because BNPL—sometimes referred to as installment payments or point-of-sale financing (POSF)—has been around longer than some of the observers.
What’s different—and important—about today’s buy now, pay later service is its place in the customer journey.
Traditionally, installment payments, POSF, BNPL—whatever you call it—was an option at checkout (i.e, the end of the customer journey). Today, BNPL influences consumers’ choices of products and providers (i.e., earlier in the journey).
Why Apple is Launching Apple Pay Later
Apple is—at its core—a products company. Its DNA is (very) well-designed hardware. Its software and services businesses may be huge, but they’re there to serve the hardware business.
Apple Pay Later is just a small part of Apple’s overall strategy to sell more hardware.
Apple’s penetration and control in the consumer market is incredibly strong, but until recently, it’s had little presence on the merchant side. Apple realizes that it needs to pursue a platform business model to protect and grow its market position.
Its recently announced “Breakout” initiative is all about addressing weaknesses in its merchant-facing proposition. And Apple has some payments shortcomings that is accelerating initiative:
- Apple Pay usage lags. According to a Q1 2022 study from Cornerstone Advisors, roughly half (52%) of consumers with a smartphone and a checking account make mobile person-to-person (P2P) payments. Three-quarters of those consumers use PayPal, 43% use CashApp, and just 26% use Apple Pay.
- Apple Card growth slowed down. After seeing a doubling of Apple Card holders in 2020, growth in 2021 slowed to a crawl. Cornerstone found that the number of consumers with an Apple Card grew from 6.4 million at the beginning of 2021 to just 6.7 million at the start of 2022.
So Apple has some payments adoption and utilization issues it has to deal with. What can it do to address those challenges?
A buy now, pay later service is one step. Splitting purchases into four payments may—and should—drive more iPhone users to adopt and/or use Apple Pay more frequently.
And as they use Apple Pay Later more frequently, qualified Apple Pay Later users become good candidates for a broader line of credit which they can get from an Apple Card.