Apple is making its biggest step to date in finance by offering loans directly to consumers for its new product “buy now, pay later”, taking on the role played by banking partners such as Goldman Sachs in other lending services.
Short-term loans provided through iPhone’s new Apple Pay Later service, announced Monday, will be given through a wholly owned subsidiary, Apple Financing LLC, the company said.
Apple Pay later It will be accepted by millions of US retailers who are already embracing the iPhone mobile and online payment service, giving it a wide reach and an enviable customer base that can already afford to use their latest smartphone.
Big Tech’s transition to a core banking business has long been feared on Wall Street after years of an awkward alliance in areas such as mobile payments. In the past, Apple had radio with Goldman issue a credit card in the US as well as at banks such as Barclays in the UK to offer financing to purchase their own devices. However, the roles of these banks have been diminished in its latest financial product.
Goldman Sachs facilitates Apple Pay Later by allowing Apple access to the Mastercard network, as the iPhone maker does not have a license to issue letters of credit directly. But Apple is taking care of the takeover and lending using its new subsidiary.
In a statement, Goldman he said he was “excited about our partnership with Apple, which will only continue to grow”.
The setting allows Apple to earn exchange fees from each transaction, as well as to give the company more control over data and international expansion plans. However, if the customer does not repay the loan, Apple must swallow the loss.
Currently, the Apple Card, which he developed with Goldman, is only available in the United States. Replacing partners such as Goldman for internal operations will help accelerate the international expansion of Apple’s financial products.
The company is accustomed to introducing its other online services such as Apple Music, iCloud and TV + to dozens of countries at the same time as it launches in the US or shortly thereafter, but the expansion of financial services is slower.
Although the company has refused to disclose its specific financing mechanism, Apple can easily afford to borrow its own balance sheet, especially for short-term loans. It had net cash of $ 73 billion at the end of March, according to the latest quarterly results.
The “buy now, pay later” service is the latest addition to Apple’s growing suite of financial services, which are managed through the Wallet app that comes pre-installed on every iPhone.
Apple Pay, which debuted in 2014, allows iPhone and Apple Watch owners to use their credit and debit cards by touching their devices to wireless readers in stores. In 2017, Apple added the ability for users to make peer-to-peer payments through a service now called Apple Cash.
Apple said it does not see the need to apply for a banking license at this time.
Several technology companies, including Amazon, PayPal, Stripe, Shopify and Block – formerly known as Square – offer financing to small businesses that sell through their platforms. However, several Big Tech companies in addition to specialized fintech companies, such as Klarna and Affirm, have given loans to consumers for general purchases, as Apple plans to offer.
Customers of Apple’s premium devices tend to have higher incomes than other customers of the technology, which makes them less credit risk. Apple can also use customer data, such as how long they have owned an iPhone or how often they buy apps from the App Store, to determine if a customer is in good standing.
Apple said its decision to do so was made in part to avoid sharing that kind of personal information with third parties. The company will not charge fees for late payment, in accordance with Klarna and Afirmbut will limit access to further short-term loans.
In March, Apple bought British fintech Credit Kudos. This start-up uses machine learning to create an alternative to traditional credit scores, which have been criticized as a way to accurately assess the financial situation of consumers.