I always thought this was a very odd thing for Apple to get into.
Apple Pay Cash seems like it makes sense (at least in the US; it never launched here in the UK, but there would be very little point in it anyway), but this and the Apple Card always seemed a little bit gross. Especially because I would presume most of the money is made from people who are less well off.
Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. So credit card companies are probably making more money off their less-well-off users as a group than the more-well-off, though it may still be that individual well-off users are more profitable than other individuals.
Ah yeah that's fair; I was thinking more interest and penalties but I guess taking a percentage on all transactions almost certainly would work out to be more
One potentially relevant point here is that Apple Pay Later was being funded by Apple directly, whereas Apple Card was on Goldman Sachs's balance sheet.
Obviously they might have been borrowing the capital from or outsourcing the risk of the former to a third party, or participating in the lending of the latter via some revenue sharing agreement; I have no idea about their particular deal for the Apple Card.
Only when there are interest charges. If there aren't (as is also the case for credit cards paid off immediately in many countries), and merchants don't offer any other incentives for doing so, why should I pay them upfront?
Quite often, I'm not even receiving goods or services at the time my payment method is charged, so in the end it would be me giving the merchant an interest-free loan!
Letting customers try out the merchandise, potentially swap for a different size of clothes etc. can be a win-win.
I don't think applies to the Pay Later. But when you look at the Apple credit card, you can finance a, lets say, Macbook Pro for 12 months interest fee with monthly payments that, if made on time, will pay off the device in 12 months. Couple that with Apple high yield savings. If you have the cash to pay for the device, why not chuck the cash into Apple's high yield savings, earn 4.4% APY and just make the interest free monthly payments?
"Apple emphasizes in its statement that its focus is on the new installment loan features coming to Apple Pay later this year. These features will be available in multiple countries around the world. Apple Pay Later, meanwhile, was only ever available in the United States."
That's actually not the same model. The important part of BNPL is that it's offered on the purchase, not as part of your credit card bill. That means the lender can decide not to offer it on any transaction they don't feel safe about, which is a more flexible than your bank/CC who have to trust you'll pay your entire bill.
Am I incorrect in thinking Apple Pay Later only works with the Apple Card? Or was it available for all cards as long as you used Apple Pay to check out?
If that were the case I can see this being like the third party BNPL schemes such as Klarna sure. Otherwise it’s just semantics of where the option lives.
There are two types of BNPL loans: interest free and short-term interest-bearing accounts. In theory BNPL has a couple interesting advantages. First you're underwriting each individual purchase whereas a credit card involves underwriting a line of credit to a consumer. This enables BNPL providers to charge different prices depending on the product being purchased, for example someone making 2,000 a month trying to buy a 1,200 phone may warrant a higher interest rate. Also given the shorter term they should be able to better optimize their rates versus a credit card which is a pre-approved rate across the entire line of credit.
> Can someone explain these buy now pay later that aren't just a 0% credit card offer? Why do they even exist?
There's all sorts of manufacturers that offer 0% financing. Presumably:
* A small cost in financing can dramatically increase their deal flow which makes the whole thing worth it.
* A lot of these deals have pretty punishing terms where if the customer can't pay on time, they get hit with all of the interest anyhow. Not sure if that's true of Apple's deal in particular.
0% credit card offers usually include an establishment fee and will charge interest, fees or both for late payments. Some are also merely introductory offers to a permanent credit card.
Apple Pay Later did not include fees or interest for the establishment of the loan or for late payments. This made the offer unique in this space.
https://support.apple.com/en-us/108419
However the compromise for such terms was a minimum purchase threshold of $50 and a maximum purchase limit of $1000 per sale, the requirement of a linked debit account (i.e. not a credit card), and Apple's ability to deny further Apple Pay Later purchases. Whereby the app simply didn't present the option.
stab in the dark: it lowers the upfront cost of the item dramatically. Instead of needing to save 2 paychecks to own an item, you can own the item now and pay out the savings from your future paychecks.
For the merchants of high ticket items, it makes their product's more accessible to people with low-savings. So the merchant offers 0% rates.
Nobody capable of high school level of math and with access to a credit card should rationally want to use BNPLs, at least in the US:
Credit card payments have an average payment due date of 6 weeks (0-4 weeks until statement cutoff, 4 further weeks until payment due date without interest charges), no interest charges when paid within that timeframe, and offer around 1-2% of cashback.
BNPLs have 25% due at 0, 2, 4, and 6 weeks respectively, for an average due date of 3 weeks, and usually don't offer any cashback. In other words, you get half as long to pay back the loan and miss out on 1-2% of opportunity cost on top of that.
The fact that people still use them shows that either some consumers value other things more highly than just the strictly best deal from a financial point of view, or is a concerning piece of evidence of a lack of financial literacy (or both).
Readit News
Apple Pay Cash seems like it makes sense (at least in the US; it never launched here in the UK, but there would be very little point in it anyway), but this and the Apple Card always seemed a little bit gross. Especially because I would presume most of the money is made from people who are less well off.
- GM created GMAC Financial to help consumers buy GM automobiles, 100-years ago.
- Apple created Apple Financing LLC, to help consumer purchase expensive phones & laptops.
Apple Pay Later might be the only thing Apple underwrote, as far as I can tell.
Obviously they might have been borrowing the capital from or outsourcing the risk of the former to a third party, or participating in the lending of the latter via some revenue sharing agreement; I have no idea about their particular deal for the Apple Card.
Quite often, I'm not even receiving goods or services at the time my payment method is charged, so in the end it would be me giving the merchant an interest-free loan!
Letting customers try out the merchandise, potentially swap for a different size of clothes etc. can be a win-win.
I know it seems like an absurd business proposition, but apparently they're able to make it work.
I considered it a few times, but like, it only spaced the payments out over 6 weeks and I had to unfreeze my credit report so...it wasn't a big win.
One reason to not do chargeback unless absolutely sure that it is valid.
[1] https://www.afr.com/companies/financial-services/apple-to-dr...
If that were the case I can see this being like the third party BNPL schemes such as Klarna sure. Otherwise it’s just semantics of where the option lives.
In other words, it's just a completely different model from retroactive, cardholder-paid flexible payment options for credit/charge card holders.
Why would the interest rate be different from someone making 2,000 a month trying to buy 1,200 $1 widgets?
There's all sorts of manufacturers that offer 0% financing. Presumably:
* A small cost in financing can dramatically increase their deal flow which makes the whole thing worth it.
* A lot of these deals have pretty punishing terms where if the customer can't pay on time, they get hit with all of the interest anyhow. Not sure if that's true of Apple's deal in particular.
Apple Pay Later did not include fees or interest for the establishment of the loan or for late payments. This made the offer unique in this space. https://support.apple.com/en-us/108419
However the compromise for such terms was a minimum purchase threshold of $50 and a maximum purchase limit of $1000 per sale, the requirement of a linked debit account (i.e. not a credit card), and Apple's ability to deny further Apple Pay Later purchases. Whereby the app simply didn't present the option.
For the merchants of high ticket items, it makes their product's more accessible to people with low-savings. So the merchant offers 0% rates.
Credit card payments have an average payment due date of 6 weeks (0-4 weeks until statement cutoff, 4 further weeks until payment due date without interest charges), no interest charges when paid within that timeframe, and offer around 1-2% of cashback.
BNPLs have 25% due at 0, 2, 4, and 6 weeks respectively, for an average due date of 3 weeks, and usually don't offer any cashback. In other words, you get half as long to pay back the loan and miss out on 1-2% of opportunity cost on top of that.
The fact that people still use them shows that either some consumers value other things more highly than just the strictly best deal from a financial point of view, or is a concerning piece of evidence of a lack of financial literacy (or both).
Dead Comment