Apple's Worldwide Developers Conference (WWDC)--which is happening this week--is when the company pulls the cover off all of the new features coming to its various software platforms. It's also--at least, in theory--when developers find out what new technology will be available to build into their apps. It is a developer conference, after all.
This year, however, one of the most important announcements isn't just for app developers. It's for small businesses. Well, sort of. Really, it's for users, but the biggest beneficiary will be small businesses. Here's why:
You're probably already familiar with Apple Pay, which Apple introduced seven years ago as a way for users to make payments when they buy something simply by tapping their iPhone. Later, the company added the ability for businesses to accept Apple Pay transactions on their online stores as well.
Then, three years ago, Apple introduced its own credit card, which was primarily designed to be used with Apple Pay. Sure, there's a fancy titanium physical card, but Apple only sends you one if you ask for it. You're supposed to just use it with Apple Pay.
Earlier this year, Apple launched a service that will allow users to accept a payment directly on their iPhone, without having to use an external third-party credit card terminal. Apple has gone all in on trying to be the primary way people process payments.
In 2020, Apple Pay accounted for about 5 percent of all credit card transactions. That doesn't seem like a lot for the world's largest company, but now Apple is diving headfirst into the buy now, pay later (BNPL) market with what the company is calling Apple Pay Later.
Here's how Apple describes it:
Apple Pay Later provides users in the U.S. with a seamless and secure way to split the cost of an Apple Pay purchase into four equal payments spread over six weeks, with zero interest and no fees of any kind. Apple Pay Later is available everywhere Apple Pay is accepted online or in-app, using the Mastercard network.
Basically, Apple is extending a very short-term interest-free loan to customers, presumably through Goldman Sachs, the bank behind the Apple Card. It appears businesses will just get paid the full amount--as if the customer used a Mastercard. It's not even clear they'll know you didn't pay the entire price up front.
It's not hard to see why Apple is interested. Analysts estimate that BNPL is a $125 billion market, growing more than 25 percent per year. Besides, Apple already lets customers pay over time when they use an Apple Card to buy things like iPhones and Macs.
Smart people have argued that after a surge in BNPL during the pandemic, consumers are having a change of heart as the economy sours. That's mostly because they are hesitant to take on more debt and pay a fee for something they aren't sure they can afford when gas is $5 or more per gallon in many places right now. Klarna, which owns about a third of the market, just announced it's laying off 700 employees.
Probably the biggest challenge facing BNPL services is the tedious work of setting up partnerships with every business that sells online. Then, you have to try to build a seamless checkout process so you don't lose out on customers who are already reconsidering whether to make a purchase.
Finally, you have to convince them it's worth it to jump through those hoops just so they can pay you an extra fee on top of their purchase--all for the privilege of spreading out payments over three or six months. Apple doesn't have that problem.
First, the company is taking on less risk since it already has your payment information on file, and only extends the payments over six weeks. Second, customers can use Apple Pay Later anywhere that already accepts Apple Pay online or in-app. Since Apple Pay is already available with most of the most popular merchant accounts, like Stripe, it's a lot easier for a small business than trying to sign up with a service like Affirm.
"For developers and merchants," added Corey Fugman, senior director of Apple Pay and Wallet, "Apple Pay Later requires no integration. It just works using their standard Apple Pay implementation."
Besides, there are more than a billion iPhones in use today. That's a lot of potential customers. Plus, how long do you think it will be before you can use it in person? The company didn't say, but it's not hard to see that's exactly where this is heading and it's something the competition can't do--at least, not easily. Apple has said 85 percent of retailers already take Apple Pay.
As a sign of how much of an impact Apple Pay Later might have, Affirm, which once dominated BNPL, saw its stock price drop 5 percent on the announcement.
The most interesting thing is that I don't think Apple is disrupting this market just for the money. I mean, of course, Apple likes making money. It's also very good at it. I just think there's a better reason, which is to own the entire experience. After all, Apple doesn't even take a cut of Apple Pay transactions.
Instead, Apple is disrupting this market because it adds tremendous value to the iPhone. The more valuable the services you can use on your iPhone, the more likely you are to keep buying a new one every few years. Ultimately, that's Apple's goal--keep selling more iPhones. That's worth a lot more than $125 billion.