Is a bank charter in the cards after Apple touts 'Pay Later' program?
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Apple (NASDAQ:AAPL) unveiled its "Buy Now, Pay Later" service during its Worldwide Developers Conference on Monday, but more details are emerging on how the business will be run. The "Pay Later" program will operate out of a wholly-owned subsidiary called Apple Financing LLC, which has the necessary state lending licenses to offer the feature. The new service will turn Apple (AAPL) into somewhat of a bank (though it doesn't have a charter) as it makes financial services a deeper part of its ecosystem.
How it works: Users will be able to split the cost of an Apple Pay purchase into four equal payments, spread over six weeks, with zero interest and no fees. The plan will be available everywhere Apple Pay is accepted - in app and online - while upcoming payments can be tracked via the Apple Wallet. If loans aren't repaid, Apple (AAPL) will no longer extend credit to those users, though the company said it won't report the missed payments to credit bureaus.
"Pay Later" will compete against similar offerings from Affirm (AFRM), Klarna (KLAR) and PayPal (PYPL), where it will earn interchange fees and valuable data from each transaction. Official BIN sponsor Goldman Sachs (GS) will give access to Mastercard's (MA) network, providing the ability to issue payment credentials directly. In the past, Apple (AAPL) has worked with Goldman to issue the Apple Card in the U.S., while partnering with Barclays (BCS) in the U.K. to offer financing for purchases of its devices.
iBank? Under the new program, Apple (AAPL) will handle credit checks, underwriting and lending, but is likely to continue to use licensed partners for its financial operations in the near future. Getting and maintaining a banking license would be a big headache for the company and may see it stray too far from its mission statement. To note, banking in general is a relatively low margin business and Apple (AAPL) would be subject to severe regulations and reporting requirements, which could be considered a big risk for the tech giant.
SoFi Technologies (SOFI) already opened the door for fintechs to become official lenders after receiving regulatory approval to become a national bank in January.