Apple Pay Later — Innovative feature Could Disrupt Credit Card Sector
Apple Pay Later could be more disruptive than the Apple Card
A new financing service called Apple Pay Later, will let consumers buy now and pay off small monthly amounts like Affirm and PayPal, according to a recent report from Bloomberg. Goldman Sachs (NYSE: GS) will be the lender but the service will not be tied to the Apple Card (a digitally managed, contactless credit card also administered by GS). Consumers do not need an Apple Card to use Apple Pay Later and they can use any credit card to pay off balances.
Apple Pay Later Details
Here’s what we know so far. Apple will offer two payment options. "Apple Pay Monthly Installments" which will allow users to pay off a loan, with interest, in monthly installments. "Apple Pay in 4" will let users pay for purchases with four interest-free payments due every two weeks. Bloomberg reported that users can apply via the Wallet app on their iPhones by sharing a copy of a government issued identification. It also reported that a credit check will not be involved in this process.
Customers will optionally end their payment plans by paying the amount off in full. There will be no late fees or processing fees for the Pay Later option. Customers can select any credit card to make their payments over time, it does not require an Apple card.
Shares of existing Buy now, Pay Later companies dropped sharply on Wednesday, July 14 as investors are concerned about the Apple impact. Zip Co LTD, Sezzle and Affirm Holdings all fell more than 14% during the trading day and closed down more than 10.5%. This downward trend supports the premise that Buy now, Pay later is more a feature, not a stand-alone product.
2 Versions of Apple Pay Later
- Interest Free
- Pay every 2 weeks
- Apple Card not Required
- Pay with any credit card
- Pay in full anytime
- Low Interest
- Pay Monthly
- Apple Card not Required
- Pay with any credit card
- Pay in full anytime
Competitive Landscape in Payment Processing
iPhone users represent roughly half the smartphone owner population, half of them have Apple Pay on their phone, and about 40% of them are frequent Apple Pay users—which brings us down to just 25 million consumers or 10% of all US adults. So there may be room for Klarna, Afterpay, and Affirm Holdings to find space to grow, however, other competitors to these specialty buy-now, pay later companies are also emerging from traditional credit card companies like Chase (NYSE: JPM) who offer the option to spread payments on purchases over $100 over multiple months automatically online or through their apps.
The vulnerability of traditional credit cards to Apple Pay Later is their high interest-rates for customers who carry a balance. Apple simply can offer a much more financially appealing option to customers.
Apple Pay Later + Apple Card grow its Ecosystem
Apple seems directly focused on Google, Square and PayPal, not the smaller players in the competitive and lucrative payment-processing market.
The adoption of the Apple Card and Apple Pay Later will strengthen its payment processing ecosystem. By rewarding customers with Apple Pay funds it increases the volume of payments handled through its system. Apple has selected partners such as Uber, Uber Eats and T-Mobile that have frequent or recurring payments processed through the Apple Pay ecosystem and gives users a 3% reward in Apple Cash to encourage transaction volume and keep it growing.
In the End — Final thoughts
Apple has been able to successfully reach two different segments the low and the high end. 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 new Apple Card holders. Ark Invest has a similar point of view on the Buy Now, Pay Later (BNPL) competitive landscape. See Ark Invest e-mail excerpt below by analyst, Maximilian Friedrich.
Apple and GS have not released full details on this feature, so the final verdict is yet to come. Apple Card has been positioned as a new approach to credit cards with a low interest rate. Pay Later option could be a game-changer for consumers. Apple and Goldman Sachs will be big winners by offering innovative and disruptive options to credit and payment processing. Keep an eye on these two innovative companies stock prices and try to buy on the dip.
Source: ark-invest e-mail by analyst Maximilian Friedrich @mfriedrichARK July 19, 2021. Click image to enlarge
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