How Apple is assuming banking tasks with Pay Later service
What's the story
Apple announced its buy now, pay later (BNPL) service, Pay Later, at the recently concluded Worldwide Developers Conference (WWDC). The tech giant has now said that it plans to fund the service by itself. The company's wholly-owned subsidiary, Apple Financing LLC, will take care of the responsibilities of lending and checking credit worthiness. Pay Later will be first launched in the US.
Context
Why does this story matter?
For years, Apple has been laying the foundation for its entry into core banking service. What started with Apple Pay in 2014 has now reached Pay Later. What separates Pay Later from anything the company did before is the lack of dependency on any financial institute. This speaks volumes about the company's intention - to create its own financial network.
Information
Apple Financing LLC has a lending license
Apple's buy now, pay later service will be managed by Apple Financing LLC, which reportedly has a license to provide lending service. However, as the iPhone maker does not have the license to issue payment credentials, Goldman Sachs will provide access to Mastercard network.
Pay later
Apple Pay Later will be interest free
Apple Pay Later is a BNPL service that will let users make purchases through Apple Pay, and then pay back in four equal installments over a period of six weeks. The service will be interest-free. A soft credit check will be performed by Apple itself by pulling out the customer's purchase and payment history with the company, including store and App Store purchases.
Purchase
No additional credit for those who miss payments
To access Apple Pay Later, customers will have to link their debit/credit cards to Apple Pay. A quarter of the purchase price will have to be paid at the time of purchase. Apple will not extend additional credit to users who miss payments. However, the company won't report missed payments to credit bureaus. In case of default, Apple will have to bear the loss.
Information
Apple Pay Later may have a credit limit of $1,000
Apple is yet to disclose the credit limit of its Pay Later service. However, it is expected to have a cap of around $1,000. The company will not charge a penalty for late payments.
Financial service
Apple will determine credit-worthiness of users for the first time
Apple's entry into BNPL is not its first time in financial services. However, unlike before, the company is gearing up to take on financial responsibilities, including credit checks and lending - similar to a bank. The tech giant relies on Goldman Sachs to carry out the same for the Apple Card. But for Pay Later loans, Apple will do all the work.