Apple (AAPL 0.52%) draws the world’s attention when it hosts its developer conferences as consumers, vendors, and tech professionals expect the latest innovations from the iPhone maker. However, while many pay the most attention to the latest product launches, Monday’s announcement of its Apple Pay Later service sent shockwaves through the fintech space.

Buy Now Pay Later (BNPL) specialists like affirm holdings (AFRM -5.50%) were the most obvious targets of Apple’s move. In fact, Affirm shares fell 5.5% on Monday, with much of the drop coming after the conference announcement. However, Apple Pay Later further cemented a key partnership between the technology pioneer and two leading players in the financial industry, and that could pay them big for years to come.

Image source: Getty Images.

Apple goes its own way

Apple announced that its new iOS 16 operating system software includes a new feature within Apple Wallet. Apple Pay Later will provide the same flexibility that customers have come to expect from BNPL services from competing providers.

Specifically, with Apple Pay Later, US users will be able to make purchases for which they use the Apple Pay feature in Wallet and split them into four equal payments spread over six weeks. Apple will charge 0% interest and will not add any fees of its own.

The drop in Affirm’s share price in response suggests that at least some investors expected Apple to choose to go the partnership route rather than launch its own BNPL program. Last summer’s announcement that had chosen Affirm as its BNPL partner showed how valuable the e-commerce giant believed the rising fintech offering to be. With Affirm users showing a demographic skew toward younger buyers, investors expected Apple to come to the same conclusion as Amazon and work with Affirm, rather than against it.

How Mastercard and Goldman Sachs could win with Apple Pay Later

Despite the hopes of Affirm shareholders, Apple Pay Later was not much of a surprise. Nearly a year ago, reports surfaced that Apple was working with key partners to develop its own BNPL service. And now that the news is out, it’s another win for those partners: MasterCard (BREAST 0.65%) Y Goldman Sachs (GS 0.57%).

Mastercard will benefit from Apple Pay Later because Apple is using the Mastercard payment network to handle installment payments under the program. Mastercard has struggled hard to distinguish itself from its larger archrival, Visa. Building on a relationship that began when the iPhone maker chose Mastercard for its Apple Card will further boost the reputation of the No. 2 payment network provider among consumers.

Meanwhile, although the statement does not specifically mention Goldman, the Wall Street banking giant is likely to be the lender behind the short-term loans under the BNPL program. Goldman is the issuing bank for Apple Card, and his decision to work more closely with Apple came at the same time he chose to move aggressively into the consumer banking side of the business with his Marcus online bank.

Will Apple Pay Later be a success?

Both Goldman and Mastercard are big enough that the Apple Pay Later news didn’t have any discernible impact on their share prices. To reap the financial rewards of Goldman and Mastercard’s expanded partnership with Apple, Apple Pay Later will have to prove that it can effectively compete with Affirm and its disruptive BNPL peers.

A key to the success of Apple Pay Later will be in its execution. Looking closely at the launch, users will be able to Apply for Apple Pay Later when using Apple Pay to pay, but that’s not a guarantee of acceptance. How strict Goldman proves to be with its underwriting could be a big factor in how consumers view Apple Pay Later and how profitable it will be for both the bank and Mastercard, as a payment network provider.

Also, Apple Pay Later is relatively inflexible and only offers a single payment option. Many buyers like the broader range of payment schedules from other BNPL providers, although consumer advocates have criticized the higher costs in fees and interest charges that some of them carry.

However, being associated with the Apple ecosystem could have long-term benefits for Mastercard and Goldman Sachs. The strength of the underlying businesses of the two financial giants makes Apple Pay Later an additional opportunity to fuel their growth.


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