Apple's Pay Later installment credit plan will be administered by a new lending business.

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Source: Apple

Apple's announcement that it will provide its own "buy now, pay later" service, which would split any Apple Pay payment into instalments, came as a shock to the fintech lending sector. However, while the new function is straightforward for users, it required some backroom reorganisation at Apple, including the creation of a new business to manage it.

Apple Pay Later is a new feature that allows consumers to pay for items in four equal instalments every two weeks, with no interest or fees. This form of "charge me later" payment has recently been popular as a supplement to online retail checkout, with businesses like Affirm and Klarna offering simple methods to overcome "confirm order" hesitation with comparable schemes.

The problem is that Apple is a consumer electronics firm, whereas lending and credit are financial services, which are governed by their own set of laws and regulations. There are standards for these things, which means that an organization must fulfill specific criteria to have its given loans insured or qualify for particular interest rates, among other things.

While Apple has previously cooperated with payment providers and others on the financial side to make Apple Pay and Wallet function, Pay Later is the first time the firm is managing the loans, risk management, and credit checks on its own. This should come as no surprise to anybody who has been following Apple's recent fintech activities, such as offering a contactless card payment option for iPhone-based checkout and then investing $150 million in March in the British banking firm Credit Kudos.

Apple had to incorporate a wholly-owned but independent business named Apple Financing LLC to execute it internally, according to Apple, which confirmed the story to NSDC after Bloomberg first reported it today. This firm will be in charge of assessing and granting credit by industry standards, as well as obtaining the appropriate permits to operate in each regulatory jurisdiction. Of course, if everything goes up in flames, the LLC will be the only one to perish.

It's worth noting that Apple's new Financing LLC did not have a bank charter; while banks are frequently lenders, this isn't always the case. Rather than taking on the job of Mastercard credential supplier directly, it has partnered with Goldman Sachs, and Pay Later is based on the Mastercard Installments program.

You'll need a debit card to join up since you can't pay off credit with additional credit. Furthermore, Apple has stated that it will run a "soft" credit pull to ensure that you are all fine in the eyes of the all-seeing, all-deciding credit gods without raising any red flags.

Because numerous BNPL companies are highly valued, the new function is likely to make a significant upheaval in the payments market. However, with Pay Later, Apple will take a huge bite out of their company; even if many businesses don't accept Apple Pay but want to provide instalment plans, there will be competitive pressure to match Apple's minimal requirements and costs to merchants. Expect significant developments in this area of fintech shortly.

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