Payments News Digest 10 June 2022

US: Apple beginning to look a lot like a bank

In a groundbreaking move, Apple has chosen to take on the risk of underwriting and lending for its new pay-in-four product – rather than look to Goldman Sachs, issuer of the Apple Card, to provide these services. Apple is notable among Big Tech players in its remarkable appeal for young Americans: now their favourite tech brand is also delivering what is fast becoming their favourite payment method: Buy now, pay later (BNPL). However, the product promise of Apple Pay Later will contrast sharply with that of the current incumbents, whose main concern is driving sales for their merchants. Apple's pay-later product is interconnected with a dashboard view in its Wallet app to help purchasers keep an eye on their repayment obligations and match them to their budgets for upcoming periods. In short, the new service is "designed with users' financial health in mind", says Apple. With that priority, together with almost unfathomably deep pockets when it comes to underwriting, Apple's entrance into BNPL represents a serious challenge not only to high-profile players such as Klarna and Affirm but also traditional consumer lenders that have been making their debuts in the pay-later arena in recent quarters but are fated for downwallet status at the digital point of sale.

Just counting iPhone owners, at least 113 million people in the United States have Apple's Wallet app – through which all of the company's financial products work. In addition, the brand has a particular attraction for the young, a key BNPL demographic, with some nine out of every ten Gen Z Americans owning an iPhone and preferring Apple Pay as their favourite payments solution according to a Piper Sandler survey of over seven thousand American teens (average age: 16). The company, in terms of financial customers, could quickly convert tens of millions of its payments customers into borrowers, which is not a far-fetched possibility given consumer enthusiasm for BNPL generally and the compelling proposition now formed by Apple's suite of products. Any significant gain of this sort could quickly take the Big Tech champion into the level of customer base that is currently served by America's biggest consumer bank: JPMorgan Chase, which has 60 million customers.

Both Apple and Chase are now well advanced in their campaign to win the business of young consumers; as even big-name innovators in BNPL look to cut costs and weather the funding storm, these two US titans have the resources to not only heavily advertise but run their digital-based consumer-credit operations at a loss for as long as it takes to dominate the market.

US: Arrival of Klarna Card marks another first for Swedish high-flyer

Meanwhile, the PR departments of Affirm (noted here last week for its Stripe partnership ) and Klarna (constantly in the media over recent months) must be working around the clock to keep up with the torrent of news about each company, part of a bid by their leadership teams to make as much ground as possible in the face of regulatory and funding headwinds. However Klarna may already have taken the prize this month for the most eyecatching innovation: the Klarna Card. When the Visa-branded offering launched last week, there were already a million Americans waiting to get their hands on the Swedish fintech's plastic debut. Issued by WebBank, the card is not only free of interest but free even of its $3.99 monthly fee for the first year: as with Apple's BNPL, Klarna Card holders can pay in four equal instalments. Merchants may baulk at the higher cost to them as it will be unclear if those spending on the card would have spent with them anyway using cash or debit.

Global: Regulators gear up in Australia and Britain

Across the Atlantic, digital bank Zopa is jumping into the UK BNPL market, targeting big-ticket spend up to £30,000 rather than impulse buys. Unlike some providers of instalment-based credit, it will be conducting credit checks, reporting whatever debit is taken on to credit bureaux. To start with, merchants will be eligible to apply, with a consumer product to be launched once the regulations have been established for the sector.

At this point, it is almost newsworthy to not be providing pay-later services such is the global interest among consumers and providers alike: from Indonesia comes news that local tech giant GoTo, which enjoys the custom of an astonishing 100 million consumers monthly, will be launching a new service for buying higher value items such as phones; at the beginning of the fourth quarter last year it introduced GoPayLater, which lets consumers delay payment until the end of the month of purchase. In neighbouring Australia, the newly elected government is promising a more stringent environment for BNPL companies : as things stand firms such as Zip and Humm are exempt from consumer protection laws that apply to more traditional offerings such as personal loans or credit cards. New regulatory ground is also set to be broken in Britain, where the authorities have signalled that Cloud providers in the banking industry will be subject to more intensified scrutiny.

Some other stories of interest this week...

Africa: Payments company makes rare purchase of US fintech
Global: Marqeta, Western Union partner for customisable digital banking
US: Fears about digital yuan may lead to app store bans
US: Stripe rival Finix reports yoy doubling of payments volume

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