The ugly economy behind Apple’s new Pay Later system


Apple is entering the “buy now, pay later” (BNPL) business with its new Pay Later service built into Apple Pay and Apple Wallet. While Apple considers the service “designed with users’ financial health in mind,” BNPL is a practice that has been criticized by government regulators as something that could potentially harm customers.

Apple’s Pay Later service, which has been in the works since last year, allows users to make a purchase using Apple Pay and then pay it back in four equal installments over the course of six weeks. There is no interest on these installments, but it remains unclear whether Apple will charge a late fee, and if so, how much it will cost.

At first glance, BNPL services seem innocuous, as some come without interest and provide an easy way to pay back a large purchase in instalments. Some BNPL companies have even come forward for payments related to care (with some existing companies, such as Affirm, add support) fill a gap for people who can’t afford to pay for health care upfront. However, this kind of service becomes easy to abuse when used for non-essential purchases.

In May, SFGate a disturbing report published on BNPL services highlighting its popularity among Generation Z, or those born between 1997 and 2012. According to the report, 73 percent of BNPL customers are in this generation, and about 43 percent of them report missing at least one payment. Another survey by Debt hammer shows that 30 percent of users struggle to make their BNPL payments, and 32 percent report that they do not pay rent, utilities or child support to prioritize their BNPL accounts. The current state of the economy is likely contributing to some of these problems.

SFGate also notes that BNPL services can lead to larger purchases. According to data reviewed by the outlet, the average Affirm customer spends $365 on a single purchase, as opposed to the $100 average cart size recorded in 2020. It has also become a way to buy a wardrobe without paying the cost upfront, with SFGate noting that Affirm’s large Gen Z consumer base spends 73 percent of their Afterpay purchases on fashion.

Like other payment systems, BNPL services can incur overdraft fees if users charge them to an account with insufficient funds, and Apple’s fine print makes it clear that this is no exception. To make matters worse, The Rising Popularity of BNPL comes at a time when credit companies like Experian, Equifax and TransUnion to include BNPL loans in credit reports† This means that missing a payment on these seemingly innocuous services will soon have repercussions – not only for consumers, but also for BNPL companies. And a survey of 2,200 people by Morning Consult reveals that BNPL users are twice as likely to be in overdraft compared to non-users.

Missed and late payments, coupled with a volatile economy, have caused Klarna’s valuation to rise to: tumble with a third – from $46 billion last year to $30 billion – and also has caused Affirm’s share price to fall† Last month, Klarna fired 10 percent of its employees because of “a highly volatile stock market and a likely recession”.

In addition to potential financial difficulties, BNPL’s services are attracting the attention of government watchdogs around the world. The Consumer Financial Protection Agency is: currently investigating BNPL companies, including Klarna, Zip, Afterpay, Affirm and PayPal, citing concerns about “debt piling, regulatory arbitrage and data collection in a consumer credit market that is rapidly changing with technology.” Last year, the UK announced stricter regulatory policy for BNPL companies.

Apple’s Pay Later is on track to receive the same kind of criticism as it injects itself into an uncertain sector as inflation rises and consumers struggle to pay for everyday goods. But it also normalizes BNPL practice by building the concept directly into the iPhone, posing a risk to both consumers and competing companies. Apple has the power to grab the attention of the millions of iPhone users who use Apple Pay, while companies like Klarna, Affirm, and Afterpay clearly don’t have that kind of grip.

Linking something risky like BNPL to Apple’s brand puts Pay Later at odds with the company’s goal of providing customers with technology and services that they generally feel good about. Like the great quote from Apple CEO Tim Cook on Apple’s Ethics and Compliance Page reads: “We do the right thing, even if it’s not easy.”


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