Apple’s installment loan scheme will live under a new loan company subsidiary

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News that Apple will offer its own “buy now, pay later” service. The splitting of any Apple Pay account has hit the fintech lending world like a lightning bolt. But it turned out that the new feature, while simple for consumers, required some behind-the-scenes reorganization at Apple, including the creation of an entirely new subsidiary to run it.

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A new feature called Apple Pay Later allows users to pay for purchases in four equal payments every two weeks without interest or fees. This “invoice later” type of payment has been popular recently as an adjunct to online checkout trading, where companies such as Affirm and Klarna have offered simple ways to overcome “confirm order” hesitation through similar schemes.

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The thing is, Apple is a consumer technology company, and lending and lending are financial services, part of an industry with its own separate rules and regulations. There are standards for these things, which means that an organization must meet certain requirements in order to insure loans issued, be eligible for certain interest rates, and so on.

While Apple has previously partnered with payment providers and others in the financial arena to make Apple Pay and Wallet work, Pay Later represents the first time the company has handled actual loans, risk management, and credit checks in-house. This may come as a bit of a surprise to those watching Apple’s recent fintech moves, adding contactless card payment for iPhone-based payments, and then paying around $150 million to British banking startup Credit Kudos in March.

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To do this internally, Apple had to create a wholly owned but separate subsidiary called Apple Financing LLC, Apple confirmed to TechCrunch after Bloomberg first reported this today.. This company will do the actual appraisal and disbursement work in accordance with the normal requirements and obtain the necessary licenses to operate in each regulatory jurisdiction. And, of course, if everything burns down, only LLC will burn down.

It’s important to note that Apple hasn’t received a bank charter for its new Financing LLC — while banks are often lenders, the reverse isn’t always true. It partners with Goldman Sachs as a Mastercard credential provider rather than taking on that role, and Pay Later uses Mastercard’s installment program as its basis.

You’ll need a debit card to sign up – you can’t repay a loan with a large loan. And Apple has said it will run a “soft” credit check to make sure you’re all right in the eyes of the all-seeing and decisive credit gods without causing any worries.

The new feature is expected to bring about major changes in the payments world as several BNPL startups are highly valued. But Apple will take a big break from its business with Pay Later; even if there are many businesses that don’t accept Apple Pay and want to enable installment plans, there will be competitive pressure to meet Apple’s minimum terms and costs for merchants. In the near future, expect major changes in this corner of fintech.


Credit: techcrunch.com /

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