Apple goes deeper into finance with buy now, pay later offering

Tech giant will approve borrowers and fund loans itself rather than rely on a bank.

Apple plans to use Apple ID data for identity verification and fraud prevention in its buy now, pay later program.

Apple tiptoed into finance with Apple Pay and the credit card it launched three years ago with Goldman Sachs Group. Now it is going all in.

The tech giant is launching a buy now, pay later offering in the US later this year that will allow consumers that shop with Apple Pay to split purchases into four payments every two weeks. Apple will underwrite the loans and fund them, which also means absorbing losses when borrowers fail to repay. An Apple subsidiary has obtained lending licenses in most states to offer the new payment plans, called Apple Pay Later.

Big technology companies have long eyed finance as a way to deepen their relationships with customers. But most have tapped banking and financial-technology partners to handle the nitty-gritty of vetting customers and dealing with the raft of regulations that surround financial products.

Apple is doing things differently this time, convinced it has the data and technology it needs to approve customers without risking big losses, according to people familiar with the matter. Much like a bank, the tech giant will rely on credit reports and FICO scores to check applicants’ financial standing. But it also plans to use its giant store of Apple ID data for identity verification and fraud prevention, the people said.

The move marks a big change for Apple, which until a couple of years ago had little appetite to become a lender itself. A concern at the company, including for chief executive Tim Cook, was the potential reputational risk, according to people familiar with the matter. When it was ready to launch a new credit card a few years ago, Apple tapped Goldman to approve applicants and fund the loans.

The company now feels comfortable becoming a lender in part because of the small dollar amount and short duration of the payment plans, people familiar with the matter said. Payment plans per transaction will max out at $US1000, and the amount for which consumers are approved will depend on their credit reports and scores.

Apple also will factor in its own information on millions of customers for identity verification and fraud prevention, the people said. Applicants whose Apple IDs have been in good standing for a long period and who have no indication of fraud are more likely to get approved.

Apple said it would require consumers to link their debit card to its buy now, pay later service. Payments will be deducted from their bank accounts automatically every two weeks unless the consumer opts out. The company said it designed the service with “users’ financial health in mind.” Apple’s experience with its credit card played a role in convincing executives that some consumers who can use credit cards prefer not to in order to avoid interest charges or carrying debt for a long period, according to people familiar with the matter. Apple’s buy now, pay later service won’t charge interest or late fees.

Apple is connecting to merchants through the Mastercard network. Goldman is serving as the sponsor, essentially issuing a 16-digit card number that merchants will receive when consumers pay using the service.

“We look forward to continuing to grow our work together through another innovative product that helps consumers lead healthy financial lives and are excited about this latest expansion of our relationship,” a Goldman spokesman said.

The Wall Street Journal