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  • Writer's pictureVeronica Irwin

Apple’s ‘buy now, pay later’ strategy isn’t what you think

Good morning, and welcome to Protocol Fintech. This Friday: Apple’s “buy now, pay later” strategy, Lummis-Gillibrand on GitHub and Brad Garlinghouse on dogecoin.


The real payoff from Apple Pay Later

Apple’s entry into the “buy now, pay later” market was one of its worst-kept secrets: Analysts had been predicting the company’s rollout of a pay-later service as early as 2020. The most common read on the move was predictable: Apple was here to smash the competition. The company has a track record of jumping into new sectors late and still managing to come out on top — the iPod came out when there were tons of MP3 players on the market.

But some analysts have a starkly different view. When you look at it under the hood, Apple Pay Later emerges as a distinctly different product than what Klarna and Affirm offer, they say — and one that isn’t much of a market predator.

Apple Pay Later is courting different customers in different places. Most “buy now, pay later” services court ecommerce marketplaces like Shopify and Amazon or large retailers to get their logos integrated at checkout.

  • Apple Pay Later lives in Apple’s digital wallet, an iPhone feature the company has been trying to build up. Users will be prompted to check out using Apple Pay Later any time they use Apple Pay or can configure loans directly in the wallet.

  • The pay-later companies, meanwhile, are trying to extend their reach through financial super apps, which allow customers to apply for payment plans even when there’s not a deal in place with a retailer, though that takes more steps than pressing a button at checkout. Other tools are the virtual and physical cards that allow customers to pay online or in-store, like Affirm’s Debit+ card or the Klarna Card.

  • Either way, a tight integration at the moment of checkout is key. Eliminating or reducing “friction” is “a huge factor” in getting consumers to take the deal, said Harry Kohl, a director at Fitch Ratings.

Apple’s advantage is that it’s already in your pocket. The wide reach of iPhones among consumers and Apple Pay among merchants — particularly at retail, where the pay-later companies are trying to use cards to boost usage — is key to Pay Later’s success.

  • “This is an opportunity to greatly expand ‘buy now, pay later’ services to people who haven’t used them in the past,” said Ian Rasmussen, who co-leads the North American asset-backed securities ratings group at Fitch Ratings.

  • The typical Apple customer differs from the kind of customer “buy now, pay later” companies have talked about serving — typically a younger customer turned off by credit cards. Third-party surveys consistently show that Apple customers have higher incomes and spend more than Android users.

  • About three-quarters of pay-later users in the U.S. are Gen Z or millennial, according to a report from eMarketer. Adults who make between $50,000 and $100,000 are most likely to use “buy now, pay later.” Research from the Ascent also shows that 45% of those customers are using “buy now, pay later” to afford something that didn’t already fit into their budgets.

What matters to Apple is keeping customers attached to those iPhones. Apple doesn’t need to woo existing “buy now, pay later” customers away from the services they use.

  • Mike Taiano, a senior director at Fitch’s North American Banks Group, sees it simply. “This is another tentacle for them to get into customers’ everyday life,” he said.

And “buy now, pay later” may be just one product among many that Apple has in mind. The company is making a big fintech play with the goal of taking more of its financial infrastructure in-house. The long-term goal may not be letting customers pay later; it could well be letting them pay any way they want to.

— Veronica Irwin (email | twitter)

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