Spending

Apple will now loan you money to keep spending and expanding its empire

Apple has joined the burgeoning “buy now, pay later” industry with a personalized service called Apple Pay Later. The service was announced earlier this week at the 2022 Worldwide Developers Conference and will initially launch in the US later this year.

Pay Later will be integrated into the Apple Wallet and can be used for any purchases made through Apple Pay. Customers will be able to split the cost of a purchase into four equal installments, with no interest or fees, spread over a four-month period.

To qualify, however, Apple will first perform a soft credit check on users wishing to use the service. The tech giant says it designed the feature with “the financial health of users” in mind.

It is likely that Apple is trying to consolidate its presence in the world of consumer credit and increase its profitability. And consumers should be aware of the risks involved in using such a service.

Apple: the darling of consumers

With the launch of Pay Later, Apple will be competing against many other similar fintech companies, including PayPal, Block, Klarna and AfterPay, some of which saw their stock prices plummet after Apple’s announcement.

Apple will benefit from its enormous market and brand power, with the ability to attract millions of people to its products and services. And by emphasizing the customer experience, Apple has succeeded in creating a community of evangelists. There is no doubt that the company is a consumer darling.

Additionally, Apple has established an ever-evolving ecosystem where users are encouraged to tap into Apple products and services as much and as often as possible, such as making payments through their iPhone instead of a bank card. .

The tech giant is offering ways to integrate once-separate computing capabilities into a phone or wristwatch, while keeping the consumer experience front and center. Pay Later further enhances this customer-centric experience. It’s another way for users to integrate the tools they need into a single ecosystem.

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What’s in it for Apple?

Apple is poised to make financial gains from Pay Later, adding to its bottom line. Currently, its reach in the retail world is evident, with iPhone-based payment services accepted by 85% of US retailers.

A 2021 survey found that around 26% of regular online shoppers in Australia used buy-it-now, pay-later services.

As Apple customers begin to use Pay Later more and more, they will benefit from merchant fees. These are fees that retailers pay Apple in exchange for being able to offer Apple Pay customers. In addition, Apple will also gain valuable insights into consumer buying behaviors, which will allow the company to predict future consumption and spending behavior.

To provide the buy now, pay later service, Apple has partnered with Goldman Sachs, which will fund the loans.

This relationship has been in place since 2019, with Goldman Sachs also acting as a partner for the Apple Credit Card (although Pay Later is not tied to the Apple Credit Card). This strategic partnership has helped Apple to establish itself firmly in the world of consumer credit.

Challenges for consumers

The reality is that the world of unregulated finance, which includes buy now, pay later, does not bode well for all customers.

Younger demographic groups (such as Gen Z and Millennials) and low-income households may be more vulnerable to the risks associated with using these services – and may incur debt as a result.

Purchases through buy-it-now, pay-later programs can also be driven by a desire to own the latest gadgets and luxury goods – a message conveyed to consumers through astute marketing. They can condition consumers to make purchases without feeling the pain of parting with cash and hard cash.

From a consumer psychology perspective, these services encourage immediate gratification and put young people on the consumption treadmill. In other words, they may continually spend more money on purchases than they can actually afford.

Missing payments on Pay Later would negatively impact an individual’s credit rating, which can then lead to negative consequences such as ineligibility for traditional loans or credit cards.

The focus on consumption behavior can also trigger an “ownership effect”. This is when people become attached to their purchases and are unlikely to return them, even if they cannot afford it.

Apple’s technology-driven, consumer-centric marketing gives it an edge over other buy-it-now, pay-later programs. He says the service is designed with consumers’ financial health in mind. But as with any of these services, consumers should be aware of the risks and manage them carefully.

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Rajat Roy does not work for, advise, own shares in, or receive funds from, any organization that may benefit from this article, and has disclosed no affiliation other than his research organization.

/ Courtesy of The Conversation. This material from the original organization/authors may be ad hoc in nature, edited for clarity, style and length. The views and opinions expressed are those of the authors.