If you’ve been following tech news lately, you probably know that Apple has discontinued its in-house Buy Now Pay Later (BNPL) service just a year after it was introduced.
Instead, it partnered with specialized providers like Affirm, which is a strategic masterstroke.
This move not only aligns with Apple’s core strengths but also positions the company to capitalize on the lucrative financial services market without the associated risks.
Apple’s decision to move away from its BNPL service makes perfect financial sense, and I’ll explain why. It’s a win-win situation, like hitting two birds with one stone.
1. The iPhone Is a Financial Hub
The iPhone has evolved into more than just a communication device; it has become a central platform for financial transactions.
Thousands of financial services companies, including BNPL services, leverage the iPhone to offer their services.
Apple can solidify its position as the central hub for all financial transactions by making the iPhone both a digital wallet and a platform for making purchases.
This dual role would allow them to collect fees on every transaction facilitated through their ecosystem rather than financing them directly.
2. Financial Risk Mitigation
One of the most compelling reasons for Apple to drop its in-house BNPL service is the inherent financial risk involved in lending.
Lending money to consumers is likely to result in potential losses, as evidenced by Goldman Sachs’ substantial losses on the Apple Card.
Instead, Apple is focusing on charging fees to BNPL companies and other financial service providers, a strategy that involves minimal risk.
In the end, Apple would rather become the middle-man cashing in on every transaction that happens inside their walled garden.
3. Leader in Digital Wallets
When it comes to using digital wallets for in-store payments, Apple Pay boasts over 500 million users worldwide and dominates the competition in the US with a share of over 90%.
This dominance allows Apple to negotiate favorable terms with thousands of global bank partners.
Even when the transactions are conducted using the Apple Card, which is issued by Goldman Sachs, Apple still benefits from the transaction fees.
It’s reported that Apple earns a 0.15% fee on each credit card purchase made using Apple Pay. This means they get 15 cents for every $100 spent, regardless of the credit card issuer.
This steady stream of revenue is both substantial and low-risk, making it a highly attractive business model.
4. Strategic Partnerships and Revenue Streams
Without taking direct financial risk, Apple can continue to offer BNPL services by partnering with BNPL specialists like Affirm.
This partnership model allows Apple to earn fees from these providers, who integrate seamlessly with Apple’s iOS operating system.
The exact fees Apple charges BNPL companies have not been disclosed, but they are likely higher than the standard transaction fees due to the added convenience and customer base Apple provides.
Additionally, Apple is enhancing its ecosystem by integrating the ability to redeem rewards from various credit card partners.
This feature not only adds value for iPhone users but also strengthens Apple’s position as a central player in the digital payment landscape.
5. Global Considerations
As a global entity, Apple operates in numerous jurisdictions, each with its own set of financial regulations.
Becoming a financial services provider in these varied regulatory environments would require significant resources and could expose Apple to substantial legal and financial risks.
So, Apple would rather partner with established BNPL providers to circumvent these challenges.
This approach allows Apple to offer financial services globally without the burdens of regulatory compliance and financial risk associated with direct lending.
The Bottom Line
Apple’s brief foray into the BNPL market served as a proof of concept, demonstrating the feasibility and potential of such services within its ecosystem.
Having validated the model, Apple is now in a position to capitalize on it by opening up to global BNPL providers.
This strategy will enable Apple to benefit from the growing popularity of BNPL services without committing its resources to managing the associated risks.
Let me know your thoughts on this sudden move by Apple.
