Trendspotter: Buy Now, Pay Later Accelerates with Introduction of Apple Pay Later

This autumn will mark Apple’s entrance into the crowded field of buy now, pay later (BNPL) services with the rollout of Apple Pay Later, a payment program allowing U.S. users to split Apple Pay purchases into four interest-free payments. The service launches with iOS 16 later this year but already has competitors on edge as it’s due to make a sizable impact on the fintech and retail industries.

Apple Pay Later isn’t the tech company’s first time expanding into consumer finance, with Apple Pay introduced to users in 2014, but it will be the first time Apple handles lending itself. The company will oversee key financing tasks, including credit checks and loan decisions, under Apple Financing LLC, a new subsidiary equipped with the necessary state lending licenses to offer the payment plans. Built into Apple Wallet, users can apply for Apple Pay Later as they are checking out with Apple Pay, or in Wallet, according to Apple. 

Upon launch, Apple Pay Later will only be available for online and in-app purchases where Apple Pay is available, not with point-of-sale transactions at retail stores.

Eligible transactions made with Apple Pay Later will be split into four equal installments over six weeks, with the first payment due at the time of purchase. 

Loan amounts may vary based on soft credit checks, and Apple won’t charge fees or interest on purchases made with the service.

Merchants and retailers that already accept Apple Pay won’t need to make any changes to accept the short-term financing option when customers use the program to make purchases. 

New features, like Apple Pay Order Tracking, will also be made available with iOS 16, equipping iPhone users with more control over their payments and financial account information. Insider Intelligence estimates that Apple Pay is already accepted at more than one million retail stores across the country, with a user base expected to grow 8.7 percent year-over-year in 2022 to hit 45.4 million users. 

While BNPL financing becomes more readily available across retailers, many personal finance experts dub them “gateways to overspending.” Upwards of 70 percent of BNPL users admit to spending “more than they would if they had to pay for everything upfront,” according to a recent survey from LendingTree. Credit Karma reports that most BNPL services were used for purchases of $500 or less, as of fall 2021, with most low-cost purchases being made by Gen Z, of which nearly half have used BNPL to make a purchase. However, more than four in ten Americans who have used BNPL have made a late payment. 

Apple’s entrance comes at a tumultuous time for BNPL competitors like Affirm, Afterpay, Klarna, and PayPal, which are currently facing a regulatory inquiry by the Consumer Financial Protection Bureau (CFPB) regarding the associated benefits and risks of these consumer credit products. Watchdogs argue that BNPL exists “in a legal gray area and that, for consumers who already struggle to pay for things, BNPL can facilitate spending beyond capacity to pay,” according to WIRED. Because Apple Pay Later only offers short-term financing and won’t charge interest or fees, the service will likely sidestep much of the regulatory scrutiny facing its competitors. 

Despite the economic uncertainty of inflation and interest rate hikes, in addition to regulators taking a closer look, BNPL market leaders are forging ahead with new partnerships and funding rounds in the fight for more significant market share. Klarna is expanding its collaboration with Marqueta to offer physical cards to U.S. users, removing prior constraints for Klarna to be used only with merchant partners. Klarna offers cards in Germany, Sweden, and the U.K., enabling customers to pay for purchases via payment installments online or in-store. Affirm inked a deal with Stripe, allowing Affirm’s Adaptive Checkout, which shows customers a side-by-side comparison of BNPL payment options for purchases ranging from $500 to $30,000 at participating Stripe merchants. 

“Apple’s foray into buy now, pay later is a strong engagement play as opposed to a pure revenue driver,” said Julianne Manoogian, senior principal of consulting at PMG. “This offering expands the scope of possibilities for Apple in terms of understanding their consumer’s financial health and habits, as Apple likely wants to future-proof its access to these insights with the evolving privacy landscape. Brands that have been integrating alternate payment options into their digital ecosystem, and also have a branded credit card, must seriously evaluate the value and convenience those credit card solutions are providing in the context of these newer payment solutions, especially to younger consumers.”

Apple Pay Later is scheduled to debut this fall, we expect BNPL to only grow in popularity compared to credit cards and other forms of payment as BNPL competitors unveil new partnerships to expand their foothold across American retail just in time for the holiday shopping season.