Will Apple rule financial services with its Pay Later scheme

Apple, better known for its iconic iPhones and iPads, is also known to disrupt industries. In a way, Apple has already disrupted the mobile industry, mobile commerce and even mobile music. The next big thing planned by Apple is to disrupt the Fintech space.

Obviously, with Apple around, the space is bound to see a major disruption. This will come in the form of a Buy now, Pay later (BNPL) scheme for its purchases. Here is how it will work.

This disruption is coming at a time when the existing Fintech companies are already facing lot of pressure from their investors in terms of cash burn and weak growth. Rising interest rates amid the Fed hiking the rates is also posing a challenge to these Fintech plays.

With the BNPL scheme (Apple Pay Later), users of iPhone and Mac located in the US can pay for their purchases in 4 equal instalments. This will ride the Mastercard network and there will be no interest or fees charged for this additional benefit. 
 

This was coming and the indications were already there. Recently, Apple had acquired UK-based credit-checking start-up, Credit Kudos. Apple has been giving a soft twist to its business model by trying to boost sales of its Apple Music and iCloud storage.

However, both these would only be successful if it was backed by a Fintech model to fund these purchases. It had earlier also launched Apple Card in association with Goldman Sachs.

Clearly, Apple is trying to ride the waning of the ecommerce boom and its likely impact on the traditional buy now, pay later (BNPL) services. Already, any of these BNPL schemes are under the scanner to ensure that people do not go overboard borrowing just as the BNPL outlets don’t go overboard lending.

This can be very painful, especially in times of spiking inflation. Traditional Fintech plays like Affirm and Klarna are likely to see rising defaults amid lower non-discretionary spending with a negative impact on profit margins.

Clearly, Apple is timing its entry into the BNPL space at the right time. Most of the traditional players in the BNPL space are either in a state of flux or are under stress due to tighter regulation. In these circumstances, it is the big guns like Apple that have a role to play. That is exactly what Apple is trying to do.