Apple Pay Later, iPhone-maker's BNPL Service, Will Let Users Split Up Purchases Into Four Payments at No Interest

Apple today announced a major update to Apple Pay, called Apple Pay Later, which will allow users to split the cost of an Apple Pay purchase into four equal payments without interest or late fees. From a report: The new financial product -- which was rumored ahead of its debut at Apple's 2022 Worldwide Developers Conference -- marks Apple's move into the enormous and growing buy now, pay later industry. Apple Pay Later is available everywhere Apple Pay is available, both in apps and on the web -- it requires no additional integration from the developer or merchant side. Upcoming payments are made, and can be tracked or managed, through Apple Wallet on iOS.

How can they afford it?

[u19925]

The short term interest rates are around 3-4% (CD rate itself is 2%). Paying over a year is equivalent of 6 months of interest. So Apple is losing 1.5-2% for each such transaction. Additionally, paying over the year is a default risk (given that Apple Card is only available on Apple phone, may be this risk is low as Apple users are comparatively better off). Do the card holders still continue to earn cash back?

Re:

[crow]

So if this costs an extra 1.5%, then it will eat much of the transaction fees, but Apple probably still comes out ahead. If it is instead of 1% cash back, then it's hardly a significant cost at all.

Re:How can they afford it?

[slazzy]

Probably the same way others do, they wait for people to pay a day late then charge. the full amount of interest for the year + fees + fines +++ etc. Also making sure your reminder emails get "lost" to make sure everyone pays late.

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[gweihir]

Probably not. Apple does not want to get a reputation for sleazy business practices.

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[narcc]

They don't seem that worried to me...

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[gweihir]

They don't seem that worried to me...

Well, maybe. We will find out. At least in my case indirectly, because I do not touch the Apple stuff. The value-for-money ratio is just way too bad and I have no interest in joining a cult to supply the other part of the experience.

app store 30% cut covers this!

[Joe_Dragon]

app store 30% cut covers this!

Re:

[gweihir]

They can "afford" it by having found out that they will likely make a profit off all the idiots that will spend more as result of this poisoned offering. Also, Apples has enough mass to insure any business risk from this, so that insurance (or rather the reserves) comes at no cost to them.

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[nospam007]

How they can afford it?

They have the money and this will ruin all the competition, wait for their howling protests in 3, 2, 1....

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[narcc]

How can they afford it!? How narrow do you think their margins are?

Re:How can they afford it?

[Waffle Iron]

The short term interest rates are around 3-4% (CD rate itself is 2%). Paying over a year is equivalent of 6 months of interest. So Apple is losing 1.5-2% for each such transaction.

When all of your products are priced at 3X what they're worth, you have a 200% cushion to work with. So 2% is a drop in the bucket.

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[kurkosdr]

How much extra margin Apple makes by convincing a customer to buy the "Pro" variant of the iPhone 13 compared to the "non-Pro" variant? How much extra margin Apple makes by convincing a customer to buy the "Pro" model compared to an iPhone SE? That's how they can afford it. They have smart people running the numbers and have figured out that any delinquencies are worth the extra margin they'll bag thanks to this. One thing is for certain, there is no shortage of people who will happily go into debt to have

Re:

[timeOday]

It's a good answer, except don't most people with phones beyond what they can afford upfront already buy them monthly through their carrier?

Re: How can they afford it?

[kurkosdr]

They wouldn't be doing it if there wasn't a market. There are people who want to go prepaid.

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[fermion]

They dot his for their own products already. Generally the purchase is divided into 12-24 payments. This was also done with the old Barclays card.

Almost every credit card has an installment option. They do charge a monthly fee which represents a reduced interest. However if you donâ(TM)t pay, you get charged full interest on top of the interest you prepaid.

So if one pays in full every month, Apple loses money. But many are not going to pay in full, so still pay interest. Apple is not doing the card

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[arosenfield]

They get a cut out of each sale, that's how. Planet Money just did an episode about how BNPL works [npr.org].

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[N1AK]

AAPL has gigantic cash reserves, your point on short term interest rates only makes sense if Apple was borrowing to fund the finance offering and/or could earn considerable interest on those cash reserves. Neither of which are likely to be the case. In return finance offerings are typically taken up by people who might not make a purchase at all without finance, or who would make a lower value purchase. Given Apple's very high margins they aren't going to struggle to afford this.

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[Dixie_Flatline]

Apple is sitting on such a huge pile of cash that the amount that they might be losing on each of these transactions is trivially offset by people just buying into the ecosystem. I think your assumption that Apple Card/iPhone users are better off and this is a low risk is a good one.

I'm doing pretty well, but there are times where I'd like this feature. Like, I'm doing well exactly because I know when my credit card payments are due and when I have to restrict my spending. Sometimes I delay purchases for mo

Much needed for parents..

[xgerrit]

You can now pay off the $250 of Smurfberries your kid bought while playing a game on your iPhone in installments. This is a godsend.

extending the debt class

[awwshit]

Seems Apple recognizes that most of their customers need to create debt to use Apple products. So they want to become the bank too - vertical integration, cut out the middle man.

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[kurkosdr]

Can you blame Apple? There is a significant crowd out there that will lap up whatever "Pro" variants Apple puts out, no matter how they are priced. You see, there is this group of people that has grown accustomed to having the top-of-the-line model of everything on launch day (you can thank their useless parents for that) and everything else is "settling", which for them is a fate worse than being tarred and feathered. Or going into debt.

BTW even if you are locked into Apple's ecosystem, an iPhone SE is

Re:extending the debt class

[xgerrit]

Seems Apple recognizes that most of their customers need to create debt to use Apple products. So they want to become the bank too - vertical integration, cut out the middle man

For years Sony made more money off lending you money to buy an expensive TV than it made off selling the TV itself. So no doubt. But for a couple years now I've been pretty sure Apple's long-term plan is to make the iPhone a product you essentially rent as part of a bundle of services. I think Apple's moves into financing are like the Motorola ROKR phase of the iPod's development.. test the waters with partners, then jump when the whole package is ready.

Convincing consumers to buy a new iPhone gets harder and harder each year because the iPhone reached the "good enough" phase long ago. By making the iPhone a "rented" part of a bundle, they eliminate consumers asking "Why should I upgrade?" and flip the question to "Why should I cancel?" So instead of selling specific features they can sell the nebulous "always have the latest" just like Photoshop and Microsoft Office. The future is the physical phone as a service.

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[N1AK]

But for a couple years now I've been pretty sure Apple's long-term plan is to make the iPhone a product you essentially rent as part of a bundle of services.

They already do this, or at least very close with the iPhone upgrade programme. With Apple One they are really pushing the services subscription and I'm sure a fully unified pay monthly package will arrive soon.

I pretty much agree on the logic that upgrading phones/tablets are a harder sell for them, with the notable caveat of the cameras which are

Everything to make people spend more

[gweihir]

In many cases more than they can afford. Apparently nobody cares that this model is not sustainable and comes with significant costs for society. This is not doing people any favors, this is ripping them off.

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[Petersko]

I don't know why you think it's "not sustainable". There's no evidence for it to date. Maybe it'll come crumbling down at some distant point in the future, but "Buy now pay later" is still alive and kicking, and has been for my whole lifetime.

I wouldn't bet there's a bottom to people's common sense and need for instant gratification.

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[gweihir]

The problem is people that go too far into debt. Ultimately these cost society a lot.

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[Petersko]

Absolutely. But it can and will go on for a very long time. The world keeps replenishing the supply of the foolhardy.

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[gweihir]

Depends on whether society can afford the cost or not. Fully agree about the endless supply of fresh fools.

lets copy what others are doing...

[Vomitgod]

apple - stand practise

news or an advert?

[conorjh]

i dont think anybody here cares about payment plans