Tim Cook enters the $100 billion BNPL market with Apple Pay Later

Apple’s strategy is to layer frictionless services on top of exceptional products. The latest offering is Apple Pay Later, a Buy Now Pay Later product that enables users to buy more than can afford right now. But what does it really mean and why are they doing it?

This article was first published on rickhuckstep.com and emailed to subscribers of the Wiser! Newsletter on June 17th 2022. They saw it first! To never miss a thing, join the mailing list here.

Buy Now Pay Later: the $100 billion market

Back Story: Apple Pay Later is Apple’s Buy Now Pay Later, or “BNPL” financial services product. It was announced at WWDC a couple of weeks ago and caught everyone by surprise(because we were all looking for an announcement about Apple Glasses). And in true Apple style, the big reveal didn’t reveal anything, keeping the commentators guessing.

So, what is it?

Apple Pay Later lets users split an Apple Pay purchase into 4 equal payments paid back over a 6-week period. It will be available anywhere that Apple Pay is accepted ( which is around 9 in 10 of all US retailers).

Whilst the details are a little hazy, Apple Pay Later is essentially a short-term, interest-free loan to customers. Exactly how Apple will make credit risk decisions is unclear, or who will carry the default exposure (probably Goldman Sachs, the bank behind Apple’s credit card, called Apple Card).

But, Apple is starting from a strong position when it comes to default risk. Remember, they already have a consumer’s payment information on file.

And Apple’s customer demographics ( probably, I assume) rank high when it comes to the ability to pay.

The takeaway: there are 2 dynamics at play here — (1) Apple owning the rails and (2) BNPL growing at 25% pa.

Apple own the rails

Apple controls the phones of the billion wealthiest people in the world ( remember, the iPhone is a high-margin, luxury item, more Ferrari than Ford). Apple Pay is already 7 years old, bedded down and trusted. It’s used by over half the iPhone population!

Here’s the thing: It all happens inside Apple.

The retailers get paid the full amount at checkout. It’s not even clear if they will know that the consumer has taken…