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The dismal economics of Apple’s new Pay Later method

Apple Pay and Apple Wallet’s new Pay Later feature offers “buy now, pay later” (BNPL). Apple claims the service is “designed with consumers’ financial wellness in mind,” but government officials have raised concerns about BNPL.

Apple Pay Later, which has been developing since last year, enables consumers to buy anything with Apple Pay and pay it off in four equal installments over six weeks. These installments have no interest. However, Apple may impose a late fee and how much.

BNPL services look safe because some provide no interest and allow you to pay off a significant purchase in installments. BNPL firms for healthcare payments, like Affirm, cover a need for those who can’t afford upfront payments. However, for non-essential purchases, this service is easy to misuse.

SFGate released an unnerving study regarding BNPL services in May, highlighting its popularity among Generation Z (born between 1997 and 2012). The survey states that 73% of BNPL clients are from this generation, and 43% have missed a payment. Another DebtHammer poll found that 30% of consumers struggle to make BNPL payments, and 32% skip rent, electricity, or child support to pay BNPL. Several issues may be related to the economy.

SFGate adds that BNPL services can increase purchasing. For example, the outlet found that Affirm customers spend $365 for every purchase, compared to $100 in 2020. In addition, according to SFGate, 73% of Affirm’s Gen Z customers use Afterpay to buy clothes.

Apple’s small print states that BNPL services can incur overdraft fees if charged to an account with insufficient money, like other payment systems. In addition, Experian, Equifax, and TransUnion are considering adding BNPL loans to credit reports. Missing a payment on these seemingly harmless services could eventually have consequences for customers and BNPL enterprises. BNPL users are twice as likely to overdraft as non-users, according to Morning Consult’s 2,200-person poll.

Missed and late payments, coupled with an uncertain economy, have allegedly dropped Klarna’s valuation by a third, from $46 billion last year to $30 billion, and Affirm’s share price. In addition, Klarna fired 10% of its staff last month owing to “a very unpredictable stock market and a possible recession.”

“We do what’s right, even when it’s hard.”

Global government watchdogs are scrutinizing BNPL services for financial and other concerns. For example, the Consumer Financial Protection Bureau is investigating Klarna, Zip, Afterpay, Affirm, and PayPal for “accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit sector already swiftly altering with technology.” Last year, the UK tightened BNPL regulations.

Apple’s Pay Later will face the same scrutiny as it enters an uncertain area when inflation rises, and customers struggle to pay for everyday purchases. Yet, putting BNPL into the iPhone normalizes the practice, risking customers and competitors. Apple can attract millions of iPhone users that utilize Apple Pay, unlike Klarna, Affirm, and Afterpay.

Apple’s mission of providing customers with technologies and services they can feel good about conflicts with Pay Later’s dangerous BNPL branding. “We do the right thing, even when it’s not easy,” says Apple CEO Tim Cook on the Ethics and Compliance website.

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