Apple Expands BNPL Offering, Apple Pay Later, in the US

By Melody Brue, Patrick Moorhead - November 8, 2023

MI&S Fintech Research Note

Apple has expanded the availability of Apple Pay Later to all users in the United States following its initial limited release in March. This feature enables users to split the cost of Apple Pay and use it on the millions of apps and websites that accept Apple Pay purchases into four equal payments over six weeks, with no interest or late fees. Eligible purchases range from $75 to $1,000 on iPhones and iPads. Users can apply for a loan within the Wallet app, select the desired amount, and agree to the terms. Once approved, a “Pay Later” option appears during Apple Pay checkout. Users receive payment overviews and can choose autopay or manual payments, with reminders and access to payment information in the Wallet app. 

Apple’s move towards wider release became evident as it removed the “prerelease version” mention from Pay Later’s support documents (as reported by MacRumors). The service is now prominently featured in Wallet’s description on the App Store. While Apple emphasizes the service’s focus on users’ financial health, concerns about consumer safety persist, with data showing that some users carry debt from other buy now, pay later services, and occasionally miss payments. 

Eligibility requires being at least 18 years old, a U.S. citizen or lawful resident with a U.S. address, and setting up Apple Pay with an eligible debit card. Users may need to verify their identity with a driver’s license or state-issued photo ID.  

With this broader launch, Apple Pay Later competes with buy now, pay later (BNPL) services from PayPal, Affirm, Klarna, and other providers in the market. 

As I wrote about earlier this year, Apple made its foray into the BNPL (buy now, pay later) landscape in March with the introduction of Apple Pay Later. When initially released, it was only for a limited number of users. As the cost of living continues to rise, consumers have increasingly turned to BNPL solutions for unexpected expenses, particularly in grocery and small-scale purchases. These are precisely the types of transactions where consumers are most inclined to utilize Apple Pay. 

Consumers who have not used BNPL services may find Apple’s product more appealing for their initial experience with installment payments. Apple’s brand is synonymous with high quality, and this perception could influence the choice to use installment payments. 

Apple seems well-equipped to offer this payment option, thanks to its substantial cash reserves, even when some BNPL providers may struggle to sustain zero-interest loans. While Apple Pay Later may not become a significant revenue stream for the company, its utility undoubtedly solidifies Apple Pay’s position within the Wallet, securing a user base that values the convenience it provides. 

Apple Financing handles credit assessment, and the Mastercard Installments program enables lending. Goldman Sachs facilitates the merchant and payment side as the issuer of the Mastercard payment credential to complete Apple Pay Later purchases. Apple’s high-yield savings account is also offered through Goldman Sachs (which has reached over $10 billion in deposits). To qualify for the savings account, users must be Apple Card holders. Apple Card is issued through Goldman Sachs, and some users have complained about reportedly having trouble withdrawing funds from their accounts. 

The Wall Street Journal reported that Goldman Sachs is in talks to offload the Apple partnership to American Express, although Apple would have to agree to the deal. Specific details remain undisclosed. However, this transition would result in the Apple Card no longer being associated with Mastercard. Meanwhile, Apple is actively working on its in-house personal finance initiative known as “Project Breakout” to reduce reliance on external partners like Goldman Sachs. This effort aims to internalize functions such as lending, fraud analysis, and credit checks. 

For Apple, the advantages of the Apple Card remain evident. It drives more users to the Wallet app, promotes the use of Apple Pay, and offers convenient financing options for customers to purchase Apple products.  

Additional analyst notes:  

  • Buy now, pay later (BNPL) apps like Affirm, Klarna, and Sezzle are tightening their credit standards, resulting in rejections for some users as higher interest rates and recession concerns challenge their business model. These services, which allow users to split purchase costs into multiple payments, have surged in popularity during the online shopping boom. However, they are now focusing on profitability rather than growth, causing unexpected denials and reduced spending limits for some customers. 
  • Regulators and consumer advocates have raised concerns about BNPL plans potentially encouraging excessive debt and overspending. BNPL companies are now slowing down lending due to increased borrowing costs, and they are being more selective in their approval process, particularly for new customers and those with lower credit scores or late payment history. 
  • BNPL companies aim to adapt to changing economic conditions and minimize loan losses. While they initially attracted users with easy access to credit, these changes may affect their customer base and growth. 
  • Zip, an Australian buy now, pay later (BNPL) company, revealed its ongoing efforts to increase credit standards in the most recent quarter. Tightening the standards resulted in an 8% decline in number of active Zip users in the United States, down to 3.9 million compared to the previous year.1 
  • In the latest quarter, the proportion of Affirm transactions involving interest fees, where customers split payments over one to 48 months, increased to 67%, supplanting the 0% transactions that the company previously popularized. Affirm Pay in 4 payments carry zero interest.2 
Melody Brue
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Mel Brue is vice president and principal analyst covering modern work and financial services. Mel has more than 25 years of real tech industry experience in marketing, business development, and communications across various disciplines, both in-house and at agencies, with companies ranging from start-ups to global brands. She has built a unique specialty working in technology and highly regulated spaces, such as mobile payments and finance, gaming, automotive, wine and spirits, and mobile content, ensuring initiatives address the needs of customers, employees, lobbyists and legislators, as well as shareholders. 

Patrick Moorhead
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Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.