Apple Discontinuing Apple Pay Later(9to5mac.com)
9to5mac.com
Apple Discontinuing Apple Pay Later
https://9to5mac.com/2024/06/17/apple-pay-later-united-states-ending/
54 comments
I think in the U.S. the most profitable customers of credit cards are the well to do because they buy so much more than poorer people.
Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. So credit card companies are probably making more money off their less-well-off users as a group than the more-well-off, though it may still be that individual well-off users are more profitable than other individuals.
> Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to.
Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats.
[1] https://www.investopedia.com/terms/d/deadbeat.asp
Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats.
[1] https://www.investopedia.com/terms/d/deadbeat.asp
In my mind, this implies that the vast majority of customers are not deadbeats - meaning they never pay off their cards in full and always have interest?
My understanding is that 25-30% of all credit card customers are deadbeats. I've worked with some fintech companies and that number came up in some discussions. I cannot, however, find a corroborating source.
Worth noting that this varies heavily by issuer - I checked out the most recent 10Ks for Amex and Discover (Visa and MC are networks and as such, operate off interchange, not interest, and I tried looking at Chase's 10K but it was too complicated for me to figure out the revenue breakdowns for their consumer card business)
* Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals.
* Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.
* Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals.
* Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.
There are also well-off people who don't watch their bills super closely and accidentally pay fees. Autopay is disabled by default, and default autopay mode is often "min due," which results in interest owed. Or they charge random bs fees people let slide.
Ah yeah that's fair; I was thinking more interest and penalties but I guess taking a percentage on all transactions almost certainly would work out to be more
These days, credit card issuers usually specialize on a specific segment of the population with each product. That's why the availability of each given card offer heavily depends on the prospective customer's credit score, disposable income (hence issuers asking for both yearly income and housing payments) etc.
On top tier cards, interest and late fees are not the intended way to make money on the majority of cardholders (although of course banks will still charge them for customers that do carry a balance). On lower tier cards, you'll often see less rewards points or even annual fees without any corresponding benefits (i.e. no lounge access, no rental car insurance etc).
For example, American Express has traditionally focused on higher-income cardholders, and their top tier cards are charge cards, which are always due in full at the end of each statement period (i.e. carrying a balance is not an option). They don't even list an APR, as far as I remember (although they've recently started offering an option to carry certain purchases, making that story a bit less clear).
On top tier cards, interest and late fees are not the intended way to make money on the majority of cardholders (although of course banks will still charge them for customers that do carry a balance). On lower tier cards, you'll often see less rewards points or even annual fees without any corresponding benefits (i.e. no lounge access, no rental car insurance etc).
For example, American Express has traditionally focused on higher-income cardholders, and their top tier cards are charge cards, which are always due in full at the end of each statement period (i.e. carrying a balance is not an option). They don't even list an APR, as far as I remember (although they've recently started offering an option to carry certain purchases, making that story a bit less clear).
My understanding is that goldman sachs, who operates the apple card under the hood, is trying to get out of the deal because they lose money on it.
I presume that the type of person who wants an apple card is strongly negatively correlated with the kind of person from whom they could make lots of money via fees from. I would bet my apple card balance that the percentage of apple card customers who religiously pay off their balance every month is much much higher than industry average.
I presume that the type of person who wants an apple card is strongly negatively correlated with the kind of person from whom they could make lots of money via fees from. I would bet my apple card balance that the percentage of apple card customers who religiously pay off their balance every month is much much higher than industry average.
Not to interrupt the "Apple buyer are sophisticated high status individuals" talk but Goldman is losing money on the Apple card precisely because they are lending to people that can't make the payments.
There were reports (OTOH from late 2023 or early 2024) that GS not being a consumer-facing credit business created a lot of headaches and need for spending.
GS did have some other cards before Apple Card, but they were not generally marketed or widely available to the masses like Apple Card. GS wasn’t well prepared for the extra overhead and customer support, and Apple negotiated a _lot_ of power that GS agreed to give them in areas like underwriting decisions. Apple wanted applications approved and many approvals wouldn’t have met with GS’s typical risk tolerance.
GS did have some other cards before Apple Card, but they were not generally marketed or widely available to the masses like Apple Card. GS wasn’t well prepared for the extra overhead and customer support, and Apple negotiated a _lot_ of power that GS agreed to give them in areas like underwriting decisions. Apple wanted applications approved and many approvals wouldn’t have met with GS’s typical risk tolerance.
Apple also reportedly wanted GS to approve everyone possible and be looser on their standards, which wouldn’t help keep away the worst customers.
Companies getting into Finance/Lending is common when you sell an expensive consumer good ...
- GM created GMAC Financial to help consumers buy GM automobiles, 100-years ago.
- Apple created Apple Financing LLC, to help consumer purchase expensive phones & laptops.
- GM created GMAC Financial to help consumers buy GM automobiles, 100-years ago.
- Apple created Apple Financing LLC, to help consumer purchase expensive phones & laptops.
Apple Pay Later is distinct from Apple's installment payment options for their own products, which have been around considerably longer, though.
What is Apple Financing LLC? iPhone upgrade program is underwritten by Citizens Bank, and Apple credit card is underwritten by Goldman Sachs.
Apple Pay Later might be the only thing Apple underwrote, as far as I can tell.
Apple Pay Later might be the only thing Apple underwrote, as far as I can tell.
Apple used to have financing for Mac and iOS device purchases that was distinct from Apple Card. Now at least in the US it seems to be financed via Apple Card.
Yeah but wasn't it though Barclays?
One potentially relevant point here is that Apple Pay Later was being funded by Apple directly, whereas Apple Card was on Goldman Sachs's balance sheet.
Obviously they might have been borrowing the capital from or outsourcing the risk of the former to a third party, or participating in the lending of the latter via some revenue sharing agreement; I have no idea about their particular deal for the Apple Card.
Obviously they might have been borrowing the capital from or outsourcing the risk of the former to a third party, or participating in the lending of the latter via some revenue sharing agreement; I have no idea about their particular deal for the Apple Card.
Incentivizing people to go into debt for a depreciating asset with no penalty was not a sustainable idea to start with.
Credit cards are still alive and well and are primarily used for consumable/depreciating products.
They can usually sell the debt for companies, which are very good at collection debts.
One reason to not do chargeback unless absolutely sure that it is valid.
One reason to not do chargeback unless absolutely sure that it is valid.
Not sure I see the relation between chargebacks and issuers selling off bad debt:
Chargebacks are either paid for by the acquiring merchant or the issuer; in both cases (if accepted by the issuer), they extinguish the cardholder's debt to the issuer.
Chargebacks are either paid for by the acquiring merchant or the issuer; in both cases (if accepted by the issuer), they extinguish the cardholder's debt to the issuer.
"Apple emphasizes in its statement that its focus is on the new installment loan features coming to Apple Pay later this year. These features will be available in multiple countries around the world. Apple Pay Later, meanwhile, was only ever available in the United States."
Why isn't is sustainable? Bad for customers, good for credit comapnies, but it isn't any different from other kinda of credit card debt, is it?
I considered it a few times, but like, it only spaced the payments out over 6 weeks and I had to unfreeze my credit report so...it wasn't a big win.
I considered it a few times, but like, it only spaced the payments out over 6 weeks and I had to unfreeze my credit report so...it wasn't a big win.
What is the collateral if they don't pay? Cc has interest rates and credit scores.
>What is the collateral if they don't pay?
It's unsecured, just like a credit card.
>Cc has interest rates and credit scores.
AFAIK BNPL products either change interest directly to the consumer or is subsidized by the merchant. There's also a credit check prior to it being granted, so it's not like they're handing it out to just anyone.
It's unsecured, just like a credit card.
>Cc has interest rates and credit scores.
AFAIK BNPL products either change interest directly to the consumer or is subsidized by the merchant. There's also a credit check prior to it being granted, so it's not like they're handing it out to just anyone.
Only when there are interest charges. If there aren't (as is also the case for credit cards paid off immediately in many countries), and merchants don't offer any other incentives for doing so, why should I pay them upfront?
Quite often, I'm not even receiving goods or services at the time my payment method is charged, so in the end it would be me giving the merchant an interest-free loan!
Letting customers try out the merchandise, potentially swap for a different size of clothes etc. can be a win-win.
Quite often, I'm not even receiving goods or services at the time my payment method is charged, so in the end it would be me giving the merchant an interest-free loan!
Letting customers try out the merchandise, potentially swap for a different size of clothes etc. can be a win-win.
I don't think applies to the Pay Later. But when you look at the Apple credit card, you can finance a, lets say, Macbook Pro for 12 months interest fee with monthly payments that, if made on time, will pay off the device in 12 months. Couple that with Apple high yield savings. If you have the cash to pay for the device, why not chuck the cash into Apple's high yield savings, earn 4.4% APY and just make the interest free monthly payments?
If there's an even longer term interest-free loan, of course I'll usually take it!
BNPLs are decidedly not that, though – see here for some back-of-napkin math: https://news.ycombinator.com/item?id=40711149
BNPLs are decidedly not that, though – see here for some back-of-napkin math: https://news.ycombinator.com/item?id=40711149
For sure, the BNLP is no where near as good at the credit card deal. In the apple specific case with the apple card, you'd be leaving the 3% cash back on the table where as the links shows, you won't get that with the BNLP. Which for a $2,000 MBP with 3$ cash back, you'd get $60 on the cash back making the device effectively $60 bucks cheaper. And a little more cheaper if you put the cash in the HYSA.
My guess to answer the question at the bottom of your comment you linked. Its a mix. For some, its a lack of financial literacy. For others, its not being bothered with other options and taking the first option thrown in their face (even unaware that better option exists).
Which in Apple's case, seems like a perfect way to push their credit card, and can use that to push it harder. Why even bother with BNLP when there is a better option. I also imagine Apple benefits more from the credit card than they do their partnerships with Affirm. But that would just purely be a guess.
My guess to answer the question at the bottom of your comment you linked. Its a mix. For some, its a lack of financial literacy. For others, its not being bothered with other options and taking the first option thrown in their face (even unaware that better option exists).
Which in Apple's case, seems like a perfect way to push their credit card, and can use that to push it harder. Why even bother with BNLP when there is a better option. I also imagine Apple benefits more from the credit card than they do their partnerships with Affirm. But that would just purely be a guess.
Apple’s financing option for their hardware, at least the one in the US based on the Apple Card, does pay the 3% cashback.
You even get the full cashback amount after making just the down payment, which I found quite nice.
I’m not even sure if you can use Apple Pay Later for most Apple hardware, since the maximum loan amount seems to be $1000.
You even get the full cashback amount after making just the down payment, which I found quite nice.
I’m not even sure if you can use Apple Pay Later for most Apple hardware, since the maximum loan amount seems to be $1000.
Phone companies have been letting poor people pay for a $1000 iphone with 36 monthly payments of $50 for years.
I know it seems like an absurd business proposition, but apparently they're able to make it work.
I know it seems like an absurd business proposition, but apparently they're able to make it work.
Weird that they have just announced a partnership with ANZ Bank in Australia to offer the same BNPL service in Australia[1]
[1] https://www.afr.com/companies/financial-services/apple-to-dr...
[1] https://www.afr.com/companies/financial-services/apple-to-dr...
Meanwhile Amex have just launched this exact model in the UK called "Plan It", though it costs a fixed fee per month of the loan.
That's actually not the same model. The important part of BNPL is that it's offered on the purchase, not as part of your credit card bill. That means the lender can decide not to offer it on any transaction they don't feel safe about, which is a more flexible than your bank/CC who have to trust you'll pay your entire bill.
Am I incorrect in thinking Apple Pay Later only works with the Apple Card? Or was it available for all cards as long as you used Apple Pay to check out?
If that were the case I can see this being like the third party BNPL schemes such as Klarna sure. Otherwise it’s just semantics of where the option lives.
If that were the case I can see this being like the third party BNPL schemes such as Klarna sure. Otherwise it’s just semantics of where the option lives.
Importantly, it's also usually the merchant (and/or the BNPL company) paying for the loan, not the consumer.
In other words, it's just a completely different model from retroactive, cardholder-paid flexible payment options for credit/charge card holders.
In other words, it's just a completely different model from retroactive, cardholder-paid flexible payment options for credit/charge card holders.
Can someone explain these buy now pay later that aren't just a 0% credit card offer? Why do they even exist?
Skirting regulations
This is very convenient for consumers. I don't know why anyone wouldn't want it.
Nobody capable of high school level of math and with access to a credit card should rationally want to use BNPLs, at least in the US:
Credit card payments have an average payment due date of 6 weeks (0-4 weeks until statement cutoff, 4 further weeks until payment due date without interest charges), no interest charges when paid within that timeframe, and offer around 1-2% of cashback.
BNPLs have 25% due at 0, 2, 4, and 6 weeks respectively, for an average due date of 3 weeks, and usually don't offer any cashback. In other words, you get half as long to pay back the loan and miss out on 1-2% of opportunity cost on top of that.
The fact that people still use them shows that either some consumers value other things more highly than just the strictly best deal from a financial point of view, or is a concerning piece of evidence of a lack of financial literacy (or both).
Credit card payments have an average payment due date of 6 weeks (0-4 weeks until statement cutoff, 4 further weeks until payment due date without interest charges), no interest charges when paid within that timeframe, and offer around 1-2% of cashback.
BNPLs have 25% due at 0, 2, 4, and 6 weeks respectively, for an average due date of 3 weeks, and usually don't offer any cashback. In other words, you get half as long to pay back the loan and miss out on 1-2% of opportunity cost on top of that.
The fact that people still use them shows that either some consumers value other things more highly than just the strictly best deal from a financial point of view, or is a concerning piece of evidence of a lack of financial literacy (or both).
Gen Z doesn't have a credit card. They have a debit card issued by some not-bank fintech app. BNPL appeals to them.
Where did you get that idea? 86% of Gen Z members (with a credit score, and you usually need one to rent) have a credit card in the US: https://www.experian.com/blogs/ask-experian/research/gen-z-a...
It was a quick generalization that I won't defend, but it's not based on nothing: https://www.paymentsdive.com/news/how-does-gen-z-feel-about-...
I wouldn't be surprised if us zoomers were more wary of incurring debt on credit cards because they seem more complex, predatory, or expensive than some BNPL with a user-friendly app. But just using them and paying them off, that's worthwhile for points.
If you can’t pay for it today you can’t afford it, unless it’s a financial investment, which wouldn’t be something you’d use Apple Pay for.
There are two types of BNPL loans: interest free and short-term interest-bearing accounts. In theory BNPL has a couple interesting advantages. First you're underwriting each individual purchase whereas a credit card involves underwriting a line of credit to a consumer. This enables BNPL providers to charge different prices depending on the product being purchased, for example someone making 2,000 a month trying to buy a 1,200 phone may warrant a higher interest rate. Also given the shorter term they should be able to better optimize their rates versus a credit card which is a pre-approved rate across the entire line of credit.
> for example someone making 2,000 a month trying to buy a 1,200 phone may warrant a higher interest rate.
Why would the interest rate be different from someone making 2,000 a month trying to buy 1,200 $1 widgets?
Why would the interest rate be different from someone making 2,000 a month trying to buy 1,200 $1 widgets?
> Can someone explain these buy now pay later that aren't just a 0% credit card offer? Why do they even exist?
There's all sorts of manufacturers that offer 0% financing. Presumably:
* A small cost in financing can dramatically increase their deal flow which makes the whole thing worth it.
* A lot of these deals have pretty punishing terms where if the customer can't pay on time, they get hit with all of the interest anyhow. Not sure if that's true of Apple's deal in particular.
There's all sorts of manufacturers that offer 0% financing. Presumably:
* A small cost in financing can dramatically increase their deal flow which makes the whole thing worth it.
* A lot of these deals have pretty punishing terms where if the customer can't pay on time, they get hit with all of the interest anyhow. Not sure if that's true of Apple's deal in particular.
stab in the dark: it lowers the upfront cost of the item dramatically. Instead of needing to save 2 paychecks to own an item, you can own the item now and pay out the savings from your future paychecks.
For the merchants of high ticket items, it makes their product's more accessible to people with low-savings. So the merchant offers 0% rates.
For the merchants of high ticket items, it makes their product's more accessible to people with low-savings. So the merchant offers 0% rates.
0% credit card offers usually include an establishment fee and will charge interest, fees or both for late payments. Some are also merely introductory offers to a permanent credit card.
Apple Pay Later did not include fees or interest for the establishment of the loan or for late payments. This made the offer unique in this space. https://support.apple.com/en-us/108419
However the compromise for such terms was a minimum purchase threshold of $50 and a maximum purchase limit of $1000 per sale, the requirement of a linked debit account (i.e. not a credit card), and Apple's ability to deny further Apple Pay Later purchases. Whereby the app simply didn't present the option.
Apple Pay Later did not include fees or interest for the establishment of the loan or for late payments. This made the offer unique in this space. https://support.apple.com/en-us/108419
However the compromise for such terms was a minimum purchase threshold of $50 and a maximum purchase limit of $1000 per sale, the requirement of a linked debit account (i.e. not a credit card), and Apple's ability to deny further Apple Pay Later purchases. Whereby the app simply didn't present the option.
Apple Pay Cash seems like it makes sense (at least in the US; it never launched here in the UK, but there would be very little point in it anyway), but this and the Apple Card always seemed a little bit gross. Especially because I would presume most of the money is made from people who are less well off.