Why is Apple killing its Pay Later service?

Cupertino-based company aims to replace its existing scheme in the US with an instalment loan programme globally

The buy now, pay later business model became more popular during the coronavirus pandemic. Getty

Apple said it will discontinue its existing Pay Later service, which was first announced two years ago and launched in the US nearly a year ago, as the company plans to expand a revamped offering to additional markets and collaborate with more FinTech players globally.

The service, offered in partnership with Mastercard and Goldman Sachs, will be replaced by an instalment loan programme through Apple Pay. It is expected to roll out later this year when Apple will launch the public version of its latest operating system for iPhones, iOS 18.

The National looks at the coming buy now, pay later service and explores why Apple decided to discontinue its existing service.

What is Apple's Pay Later service?

In May last year, Apple introduced its Pay Later programme in the US that allowed users to split their purchases into four payments over six weeks with no interest or fees.

First announced at Apple’s developers’ conference in June 2022, the service allowed users to apply for loans ranging from $50 to $1,000. The loan amount can be used for online and in-app purchases made on iPhone and iPad with merchants who accept Apple Pay.

Users were asked to link a debit card from Apple Wallet as their loan repayment method. Credit cards were not accepted and purchases using Pay Later were authenticated using facial ID, touch ID or passcode.

Apple’s latest instalment loan offering

Apple said it is stopping Pay Later service in the US as it is introducing a new loan service that can be repaid in instalments, globally.

Beginning later this year, users worldwide will be able to obtain instalments offered through credit and debit cards, as well as various lenders, when using Apple Pay, the Cupertino-based company said on Monday.

“Our focus continues to be on providing our users with access to easy, secure and private payment options with Apple Pay, and this solution will enable us to bring flexible payments to more users, in more places across the globe, in collaboration with Apple Pay enabled banks and lenders,” Apple said.

Partnership with Affirm

Apple has joined hands with San Francisco-based FinTech company Affirm to let its device users avail BNPL services. It is expected to happen later this year, probably September or October, when Apple will launch public versions of its latest operating systems.

Users in the US will be able to apply for loans directly through Affirm when they check out with Apple Pay, Apple said.

“This will enable those users checking out online or in-app with Apple Pay on iPhone and iPad to be able to apply to pay over time with Affirm,” Affirm said in a regulatory filing.

Founded in 2012, Nasdaq-listed Affirm offers BNPL service for online and in-store shopping. It had over 18 million users as of last year.

Apple has also teamed up with various financial institutions to ensure the smooth roll-out of its services globally.

“The ability to access instalments from credit and debit cards with Apple Pay will roll out starting in Australia with ANZ; in Spain with CaixaBank; in the UK with HSBC and Monzo; and in the US with Citi, Synchrony, and issuers with Fiserv,” Apple said.

What happens to existing users?

Users with active Pay Later loans will continue to manage and make payments through the Apple Wallet app, as they currently do, Apple said.

“Apple Pay Later is no longer offering new loans for purchases with Apple Pay. Your existing loans and purchases are not affected. You can continue to manage your loan and view loan details in Wallet,” it said.

How did Apple run its Pay Later programme?

The company used a new wholly owned subsidiary, Apple Financing, to handle lending and credit check services. It used to run a soft credit check to ensure that borrowers can pay back the loans.

It was the first time the company handled financial services such as loans, risk management and credit assessments on its own.

This service was introduced when interest rates in the US were lower, which made borrowing highly appealing. However, as central banks raised rates to combat inflation, such plans lost their attractiveness, industry analysts said.

How big is the market?

The BNPL business model, which allows consumers to make online purchases and spread out interest-free repayments, became more popular during the coronavirus pandemic.

Global BNPL transaction values are projected to grow to $576 billion by 2026, up from $120 billion in 2021, according to data analytics company GlobalData.

The world’s biggest BNPL companies include Affirm, Sweden’s Klarna and Australia’s Afterpay.

Established BNPL players in the UAE include Mubadala-backed Tabby, as well as Postpay, Cashew, Spotii and Tamara.