CreditCards.com senior industry analyst Ted Rossman compares the Apple Pay Later offering to similar four-step processes at Affirm and Klarna, and says this is a way for the tech giant to dive deeper into the financial industry.

Closing Bell

Apple Looking To Take Bite Out of 'Buy Now, Pay Later' Marketplace

you've heard of the popular Buy Now Pay later strategies used by companies like Affirm and Karna well now you can add one more name to that company list. Apple joining us now is Ted Rossman, senior industry analyst for credit cards dot com. An organization devoted to helping consumers make informed choices about credit cards. So my first question is how does Apple's pay later compare to other Buy Now pay later platforms, it's following this four interest free payment over six week models. So that's something that afterpay really hangs its hat on. It's something that's offered by a firm and clar no, although they both have longer term plans with or without interest, Apple Pay Leader is not going there at least at this point. The other interesting thing that stood out to me about the Apple Pay Later announcement is that they indicated that it's only going to be available at first for online transactions and in app purchases. So not all forms of using Apple Pay at brick and mortar stores. Got it. And let me ask you why would Apple want to do this? I think it's a way for them to get deeper into the financial industry. So they have mobile payments through Apple Pay, they have a credit card in Apple card, they have a peer to peer payments infrastructure, I think it's a way for them to expand. It actually potentially reminds me of what a firm and Karna are doing with their debit cards because those are really blending buy now pay later with more of an in person credit or debit card environment online too. Of course. Historically Buy Now pay later has been mostly online now it's interesting that Apple pay later seemingly won't be at the vast majority of brick and mortar stores at first. But I think that's one way the industry is headed. I think the other one is services and I think that to compete in that Apple is going to have to have longer plans for payments over six weeks isn't enough for a big medical bill or veterinary dental or something like travel. I I think they need to stretch those out a bit more. What kind of advantage perhaps unique advantage does Apple have over the other guys name recognition for sure. I mean that's something every time Apple does something everybody takes notice. Um So I think that is definitely interesting. I think also the fact that they're partnering with Goldman Sachs and Mastercard, it's so interesting because in other countries like in china for example the tech companies are running a lot of finance and they're doing it on their own rails in the U. S. Largely because we have more regulation, it's through those traditional rails. So like when you use Apple Pay you're using a traditional credit card or debit card now with Apple Pay later they're able to circumvent some of that and they actually own the payment methods so that's a step forward for them. So I want to share them with you, consumers have taken a massive amount of credit debt in 2022 this year. Okay so rising to, Gotta read it twice. $841 billion dollars in the first three years, three months rather of this year. Buy now pay later. Is this a good idea for consumers given that we're at 841 billion in the first three months of this year. There's a saying and it's often attributed to credit cards which is that they're like power tools. They could be really useful but they could be dangerous in the wrong hands. I think you could extend that same logic to buy now pay later. I think sometimes it works and I think sometimes it leads people to overspend what I think works best is isolating a certain large purchase like if you can get a low or no interest rate on a couch or a tv or something like that. You split it up into easy installments, you pay it off over time you keep it separate from your high interest rate credit card. That to me makes a lot of sense but where I think it gets more blurry is when you're overspending and when you're mixing and matching a lot of these different plans. I think there does need to be more regulation the C. F. P. B. Is looking into it. It's also something that's in the process of being added to credit reports. I think the industry is starting to mature, maybe some more consolidation is needed, I think there's something there, but there's some pitfalls also to be sure. Yeah, I was gonna say buy Now Pay later is a little slippery when it comes to credit reports. Can you explain why this is different from your credit card when it comes to the reports. Traditionally buy Now Pay later has been outside of the credit system, They only do a perfunctory soft credit check. Most of these plans have not been reporting to credit bureaus that's starting to change but it's going to be a slow process. I think it's important for better or for worse. You know, there's a credit building aspect to this too because a lot of young adults used buy Now pay later. They may not have traditional credit so it actually could help them in that sense. But we also want to know and the lending industry wants to know are people falling behind, are they taking on too much debt? These kind of micro loans can sort of obscure the true financial picture if you have a bunch of these short term plans running, they can really add up now. It was august 20th 2019 when Apple introduced their Apple credit card in my circle of friends and I'm a pretty big tech guy. None of my buddies have an Apple credit card, what makes Apple think that everyone's gonna be running to go use their buy now pay later. They have a big advantage not only with their branding and name recognition, but the fact that Apple pay and soon to be Apple pay later are built into all of their phones. I think that's a big advantage and I think that's one of the reasons why Wall Street is nervous about companies like affirm and Karna because you kind of have to go out of your way to find them now. I know they have a lot of high profile partnerships with retailers and I think they potentially have a bright future too, but we also know kind of the bloom is off the rose with respect to A firm stock is down 75% this year. Clark is reportedly raising money at evaluation about a third below where it was a year ago, investors are worried about slower e commerce growth, they're worried about the higher cost of funds, they're worried about more regulation. So it's an interesting time in the buy now pay later space. All right Ted Rossman, senior industry analyst for credit cards dot com over in Pleasantville new york. Westchester. Alright, me too. I'll see you later. Ted thank you so much