Does Apple want to be a bank? The technology company may not have a banking licence but it has the financial firepower necessary to do the job. Free cash flow last year was close to $93bn. Cash and marketable securities add up to $193bn. That is almost twice the market value of Goldman Sachs.
Apple’s decision to extend buy now, pay later loans itself, instead of relying on partner Goldman, is a noteworthy marker of its ambitions in financial services.
Apple Pay Later will check consumer credit and offer loans via a subsidiary, providing users with the ability to spread out purchase costs in four payments over six weeks. BNPL is a fast-growing market. Globally, it is forecast to grow 27 per cent a year in the next three years, according to fintech research group Kaleido Intelligence.
Tech companies moving into lending is not unprecedented. Amazon offers loans to its own vendors, for example. IBM has a global financing business. Still, moving into credit assessment and loans requires a new set of skills.
Apple is taking a risk by moving further into finance. Earlier in the week Lex assumed it would make sense for core underwriting and credit risk to belong to Goldman Sachs. That would insulate the tech company from the pitfalls of extending credit. If a customer fails to pay back a loan, Apple would take the hit.
Choosing to take the leap when recession looms might appear odd, even hubristic. Slowing economies raise the odds of missed payments and default. Shares in BNPL provider Affirm trade 52 per cent below their listing price.
But Apple’s user base, a group accustomed to paying more than $1,000 for a top-end phone, should boast above-average creditworthiness. Apple may also have access to user data that help it to make more accurate credit assessments. And a weakening economic environment may allow Apple to build a more realistic creditworthiness model than during boom times.
Apple’s interest in financial services is part of a broader plan to put its own funds to work and make more money from its existing user base. Under chief executive Tim Cook, services have ballooned to account for a fifth of sales.
But despite its size, Apple may not transform the BNPL market. Apple has 1.8bn active devices worldwide. According to data from eMarketer, just 44mn Americans used Apple Pay last year.
The Lex team is interested in hearing more from readers. Please tell us what you think of Apple’s move into buy-now-pay-later in the comments section below.
