Apple joins the ‘buy now, pay later’ race with new interest-free feature

Apple has today launched Apple Pay Later, a buy-now-pay-later service with no interest fees, in partnership with Goldman Sachs Group, who will be lending the funds for the installment offering loans.

The service has been announced as part of iOS 16, alongside a suite of new updates including a personalised lock screen gallery, ‘Focus’, iCloud shared photo library, deeper CarPlay integration, live text, order tracking and more.

The move marks Apple’s official segue into the thriving BNPL (buy now, pay later) market. Apple Pay Later is initially being launched for users in the US, enabling them to use Apple Pay to split the cost of a purchase into four equal payments spread over six weeks, with zero interest and no fees of any kind. The service is built into Apple Wallet and powered by the Mastercard network, with Apple claiming it is ‘designed with users’ financial health in mind’.

Users can apply for Apple Pay Later when they are checking out with Apple Pay, or in Wallet.

When making purchases through an Apple Pay Later plan, users will be able to choose any credit card to make their payments over time. The service is planned to be available for purchases made at either retail or online stores.

Additionally, with Apple Pay Order Tracking, users can ‘receive detailed receipts and order tracking information in Wallet for Apple Pay purchases with participating merchants’. This function will be integrated with Shopify.

In recent months and years, the BNPL industry has seen extraordinary growth, with platforms like PayPal and Amazon (in partnership with Affirm) offering BNPL options. Last week, Affirm announced a BNPL partnership with Stripe to offer its technology to U.S. businesses that use Stripe’s payment technology.

Apple’s entry into the market marks yet another addition into an industry that is seeing rapid, extraordinary growth in Australia.

According to a survey conducted in 2021, approximately 26 percent of regular online shopping consumers in Australia used BNPL services to purchase clothing and other accessories. Among the respondents, around 20 percent used BNPL services to buy electronics and computing devices in that same year.

Apple’s entry into the market may spell bad news for the cluster of existing BNPL players in the Australian marketplace, which include Afterpay, Zip, Klarna, Payright, humm, Sezzle, OpenPay, Splitit and many more.

Endless diversification, unbridled growth

In July last year, dine now pay later service Payo was launched in Melbourne and Sydney after an initial successful launch in Brisbane. The service, which enables customers to check themselves out using the unique payo QR code on the table to pay in four interest-free, equal instalments, is available at more than 700 participating restaurants, cafes and bars across Sydney, Melbourne, Brisbane and the Gold Coast.

The service is a world-first in the BNPL industry, and its digital, streamlined nature claimed to address inefficiencies and issues impacting the hospitality industry, primarily pandemic-induced staffing shortages.

Payo is yet another example of the diversification occurring in the BNPL space. While the unbridled ambition of the industry has made it incredibly ubiquitous in the retail space for years now, consumers seem eager to leverage the business model in even more of their day-to-day transactions.

BNPL branding called out by regulators

However, the seemingly no-strings-attached nature of the interest-free installment system isn’t as harmless as it appears. From 1st June 2022, global BNPL player Klarna started reporting its credit data to lenders, a landmark crackdown for the industry.

The changes will take place in the UK, and come amidst rising pressure from regulators to protect consumers from falling into entrapments of debt. Most BNPL firms only perform soft credit checks that don’t affect consumers’ credit scores and are not visible to lenders.

Klarna was founded in Sweden, and while still a private company, it’s anticipated to have its IPO in the next year or two following its recent $3.7 billion in funding from investors including SoftBank, China’s Ant Group and US rapper Snoop Dogg.

The recent Klarna news comes amidst burgeoning criticism from regulators and consumers alike that the easy, accessible nature of BNPL services is luring consumers into spending more than they have, as well as normalising and even romanticising debt. Critics have even noted that the branding and UX design of certain BNPL apps, which typically feature soft, approachable colours like pale blue or pink, are designed with the intention to dissuade consumers from detecting risk in taking on installment debts.

Now that consumers face the possibility of not being able to secure a mortgage thanks to their installment-enabled outfit, dialogue surrounding the follies of BNPL marketing has become more widely disseminated into the public and government sphere.

According to the Q4 2021 BNPL Survey, BNPL payment in Australia is expected to grow by 72.1% on annual basis to reach US$13.5 billion in 2022.


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