Apple’s Worldwide Developers Conference (WWDC) – which is taking place this week – is when the company takes the lid off all the new features coming to its various software platforms. It’s also – at least, in theory – when developers discover what new technology will be available to include in their apps. It’s a developer conference, after all.
However, one of the most important announcements this year is not just for app developers. It’s for small businesses. Well kinda. Really, it’s intended for users, but the biggest benefactor will be small businesses. this is the reason:
You may already be familiar with Apple Pay, which Apple introduced seven years ago as a way for users to make payments when they buy something simply by tapping on their iPhone. Later, the company added the ability for businesses to accept Apple Pay transactions in its online stores as well.
Then, three years ago, Apple introduced its own credit card, which was primarily designed to be used with Apple Pay. Sure, there’s a fancy physical card made out of titanium, but Apple only sends you one if you ask for it. You’re only supposed to use it with Apple Pay.
Earlier this year, Apple launched a service that allows users to accept payment directly on their iPhone, without having to use an external credit card terminal. Apple has gone to great lengths to try to be the primary way people process payments.
In 2020, Apple Pay accounted for about 5 percent of all credit card transactions. That doesn’t sound like much for the world’s largest company, but Apple is now diving first into the Buy Now, Pay Later (BNPL) market with what the company calls Apple Pay Later.
Here’s how Apple describes it:
Apple Pay Later provides users in the US with a seamless and secure way to split the cost of purchasing an Apple Pay into four equal payments spread over six weeks, with no interest and no fees of any kind. Apple Pay Later is available everywhere Apple Pay is accepted online or within the app, using the Mastercard network….
Essentially, Apple offers a very short-term, interest-free loan to customers, presumably through Goldman Sachs, the bank behind the Apple Card. It seems that companies will only get the full amount – as if the customer was using a MasterCard. It’s not even clear that they’ll know you didn’t pay the full price up front.
It’s not hard to see why Apple is interested. Analysts estimate that the BNPL market is $125 billion, growing more than 25 percent annually. Besides, Apple is already letting customers pay over time when they use their Apple Card to buy things like iPhones and Macs.
The smart people argued that after a spike in BNPL during the pandemic, consumers’ opinion changed as the economy deteriorated. This is mostly because they are reluctant to take on more debt and pay fees for something they are not sure they can afford when gas is $5 or more per gallon in many places right now. Klarna, which owns about a third of the market, has just announced that it is laying off 700 employees.
Perhaps the biggest challenge for BNPL services is the hard work of establishing partnerships with every company that sells online. Next, you have to try to build a smooth checkout process so that you don’t lose out on customers who are already reconsidering whether or not to make a purchase.
Finally, you have to convince them that it’s all worth it to jump through those hoops just so they can charge you extra on top of your purchase – all for the privilege of spreading the payments over three or six months. Apple does not have this problem.
First, the company takes less risk because it already has your payment information on file, and only extends payments over a six-week period. Second, customers can use Apple Pay later anywhere that already accepts Apple Pay online or in-app. Since Apple Pay is already available with most of the more popular merchant accounts, like Stripe, it’s much easier for small businesses than trying to sign up for a service like Affirm.
“For developers and merchants,” added Corey Fogman, Senior Director of Apple Pay and Wallet. “Apple Pay Later doesn’t require any integration. It only works using the standard Apple Pay app.”
Besides, there are more than a billion iPhones in use today. That’s a lot of potential customers. Plus, how long do you think it will take before you can use it in person? The company hasn’t said but it’s not hard to see exactly where this is headed and it’s something the competition can’t do – at least, not easily. Apple said 85 percent of retailers already take Apple Pay.
As a testament to the extent of the impact Apple Pay Later could have, BNPL’s once-dominant Affirm saw its share price drop by five percent upon the announcement.
The most interesting thing is that I don’t think Apple crashes this market just for the money. I mean, of course, Apple likes to make money. She’s also very good at that. I just think there’s a better reason, which is to own the whole experience. After all, Apple doesn’t even take a cut from Apple Pay transactions.
Instead, Apple is disrupting this market because it is adding tremendous value to the iPhone. The more valuable the services you can use on your iPhone, the more likely you are to keep buying a new one every few years. Ultimately, that’s Apple’s goal – to keep selling more iPhones. That equates to well over $125 billion.