I told you so! During Money 2020 I was asked many times about Apple Pay Later and how they would fund the loans. My response? “why would you use Goldman Sachs, or any other bank, when you have billions in cash reserves not being used? I think Apple will use their own cash.”
Apple Pay Later product to use $73 billion for loans
Now it seems that my prophetic view has been justified. it turns out that the short-term loans made through Apple Pay Later, will be made through a wholly owned subsidiary, Apple Financing LLC.
Apple Pay Later will be accepted by the millions of US retailers that already accept Apple Pay, giving it a broad reach and an enviable customer base who can already afford to splash out on the company’s latest smartphone.
Big Tech’s move into the core banking business has been long feared on Wall Street after years of an uneasy alliance in areas such as mobile payments.
In the past, Apple has worked with Goldman to issue a credit card in the US, as well as with banks such as Barclays in the UK to offer financing for purchases of its own devices.
However, those banks’ roles are diminished in its latest financial product. Goldman is facilitating Apple Pay Later by allowing Apple to access Mastercard’s network, since it lacks a licence to issue payment credentials directly. But Apple is handling the underwriting and lending using its new subsidiary.
In a statement, Goldman said it was “excited about our partnership with Apple, which will only continue to grow”.
The set-up will allow Apple to earn interchange fees from each transaction as well as give the company more control over data and help accelerate the international expansion of its financial products.
However, if a customer fails to pay back the loan, Apple must swallow the loss. Apple has previously rolled out other online services such as Apple Music, iCloud and TV Plus to dozens of countries simultaneously with launches in the US or soon after, but the expansion of its financial services has moved more slowly.
At present, Apple Card is only available in the US. Though the company declined to disclose its specific financing mechanism, Apple can easily afford to lend off its own balance sheet, especially for short-term loans.
It had net cash of $73 billion at the end of March, according to its most recent quarterly results.
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