Apple will handle lending itself with the 'buy now, pay later' service

Launches 'Buy Now Pay Later' scheme, sets up a wholly owned subsidiary to extend loans for the service

Apple will handle the lending itself for a new “buy now, pay later” offering, sidestepping partners as the tech giant pushes deeper into the financial services industry.

A wholly owned subsidiary will oversee credit checks and make decisions on loans for the service, which is called Apple Pay Later. The business -- Apple Financing LLC – has necessary state lending licenses to offer the feature, though it operates separately from the main Apple corporation, the company said in response to Bloomberg questions.

The move marks the first time Apple is handling key financial tasks like loans, risk management and credit assessments. It’s a significant shift for a company that got its start selling computers. Until now, Apple’s financial services have been backed by third-party credit processors and banks. The Apple Card credit card, for instance, relies on Goldman Sachs Group Inc. for lending and credit assessment.

Goldman Sachs retains a smaller role in the new program. The financial firm is the issuer of the Mastercard payment credential that’s used to complete Apple Pay Later purchases. Apple Financing doesn’t have its own bank charter.

Apple has been working to move many elements of its financial services in-house as part of a secret initiative dubbed “Breakout.” In addition to taking on lending, credit checks and decision-making, Apple is working on its own payment processing engine that may eventually replace CoreCard, Bloomberg reported in March. It’s also working on new customer-service functions, fraud analysis, tools for calculating interest and rewards for other services.

 Apple wouldn’t be taking on much risk with the latest effort: Apple Pay Later transactions will be capped depending on a user’s credit history. 

Financial services help keep users glued to their iPhones. That’s why the company wants greater control over the process, letting it roll out new options more quickly and potentially collect more revenue.

Apple Pay Later -- introduced Monday at the company’s Worldwide Developers Conference as part of the iOS 16 operating system -- will let customers split up the cost of any Apple Pay transaction over four installments across six weeks. The program will start in the US at first, though Apple plans to eventually expand its newer financial services to more regions. 

The company is also working on a longer-term “buy now, pay later” program called Apple Pay Monthly Installments, Bloomberg has reported. While the shorter-term Apple Pay Later offering doesn’t use Goldman Sachs or other major partners, the longer-term plan is likely to rely on an array of other companies – including Goldman Sachs -- that could offer different plans and interest rates. In April, Goldman Sachs Chief Executive Officer David Solomon said his company was “very comfortable” with the Apple partnership.

Earlier this year, Apple acquired UK-based startup Credit Kudos, which uses bank data to make lending decisions. The iPhone maker’s in-house risk assessment engine will take into account consumers’ history as Apple customers, Bloomberg reported in March. 

Beyond the pay-later service, Apple plans to use its in-house lending and technologies for an upcoming iPhone hardware subscription program.