To The Moon

Apple has announced the launch of Apple Pay Later in the US, allowing users to split purchases into four payments over six weeks with no interest or fees. Users can apply for loans between $50 and $1,000, which can be used for online and in-app purchases made with merchants that accept Apple Pay. Such Buy Now Pay Later (BNPL) services aren't new. In fact, there have been many of them such as Affirm, Klarna, and Zip. Most of them have experienced slowing revenue growth and ongoing losses. The share prices of some of these providers, such as Affirm and Zip, have plummeted by 91% and 68% respectively since their IPOs in 2021 and 2009. So how could Apple win where other BNPL firms have struggled? The answer lies in the iPhone. Smartphones have become an integral part of our lives and the iPhone has more than 50% market share in the US, giving Apple the power of a gatekeeper to the users. This level of control is evident in Apple's ability to prevent Facebook from tracking users through its privacy policies and take a 30% cut of app revenue due to the rules set by the app store. Apple has already expanded into various industries, such as music, movies, fitness, and health. With Apple Pay Later, Apple is tapping into yet another aspect of our daily lives, allowing the company to capture a slice of the lucrative finance industry pie. Apple Pay was Apple's first foray into finance, having been introduced in 2014. In the US, 78% of iPhone users have activated Apple Pay, highlighting its popularity and user stickiness. Personally, I use Apple Pay because I find it more convenient. With the phone always in hand, Apple Pay will always be easier than reaching out for a wallet and taking out a card. The path of least resistance wins. Like with the App Store, Apple has managed to negotiate with banks to pay them 0.15% of each transaction made through Apple Pay. This means that Apple takes a cut just by virtue of having iPhones as an intermediary. With the high adoption of Apple Pay, Apple does not need to acquire new customers like the rest of the BNPL. It already has a base of Apple Pay users who can easily use BNPL with the same Apple ID and phone. The convenience of this seamless integration further increases adoption rates. Apple is taking a step closer to the role of a bank with its Apple Pay Later service. Banks have always handled the approval of loans, but Apple wants to do it instead. Apple Financing LLC, a subsidiary of Apple, will be responsible for credit assessment and lending for Apple Pay Later. Apple has an advantage over banks, as the company has access to vast amounts of user data. With this data, Apple could potentially assess creditworthiness more accurately than banks, which often rely solely on credit reports and FICO scores. While Apple Pay currently generates only around an $800 million in estimated revenue, this figure is expected to grow substantially as more financial products and services are offered through the platform. It's not hard to imagine Apple Pay becoming its own reporting segment.