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Apple will lend off its own balance sheet for BNPL offering

Illustration of an iPhone displaying the time "$$:$$" and an alarm snooze button.

Illustration: Allie Carl/Axios

Apple will rely on a wholly-owned subsidiary to oversee credit checks and finance loans as part of Apple Pay Later, its new "buy now, pay later" (BNPL) offering.

Why it matters: This is a big step for Apple, which had previously relied on partners for new financial products like Apple Card. And it could be a preview of other fintech offerings from the company in the future.

Mea culpa: On Monday, I speculated, based on earlier reporting, that Apple would partner with Goldman Sachs to finance loans under its new BNPL offering. That is decidedly not the case.

Driving the news: Through its subsidiary Apple Financing LLC, the iPhone maker will do all of the soft credit checks, credit decisioning, and loan issuance associated with Apple Pay Later purchases.

  • So Apple is lending off its own balance sheet and also taking on all of the risk associated with the new program.
  • The subsidiary has acquired all the state licenses required to issue these loans.

How it works: Apple Pay Later leverages Mastercard Installments to handle its payment processing.

  • To a merchant, the purchase will look like a typical credit card transaction tied to a virtual Mastercard in the customer’s Apple Wallet.
  • Goldman Sachs is still involved — but just as the BIN sponsor for the program. It will not do any underwriting or lending.

For Apple Pay Later, users will have to link a debit card as a funding source to pay back the loans.

  • The company plans to be conservative with credit lines extended to users, particularly those the company doesn't have any credit history with.
  • And when it comes to delinquencies, a company spokesperson said, Apple has no plans to send customers to collections — they will just not be able to use the Pay Later product in the future.

Of note: The launch comes just a few months after Apple acquired Credit Kudos, a U.K.-based startup that billed itself as a "challenger credit bureau" to help banks make lending decisions.

Our thought bubble: It's unlikely that Apple will get into full-scale banking any time soon, but it's definitely creating the infrastructure required to launch more ambitious financial products in the future.

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