Paze or Apple Pay Later? The Battle for Online Checkout Intensifies
Two interesting pieces of news came through earlier this week, both aiming to make it easier for customers to pay for e-commerce purchases. First, we heard that the new bank wallet announced late in January got a name and will be called Paze. Then, within 24 hours, Apple announced launching Apple Pay Later.
It seems that the biggest news with Paze is the name itself. It will be interesting to see how it is perceived by customers. The answers to a quick informal poll of views so far ranged from "terrible, but at least it's not Isis" to "assuming it's pronounced the same as Pays, I am surprised it's not been trademarked before!"
On the other hand, Apple Pay Later has been originally announced nearly a year ago, so the latest news was a welcome opportunity to take a closer look at how it will work. Customers will be able to split purchases into four payments, spread over six weeks with no interest and no fees, and each loan will be limited to a single purchase of $50 - $1,000. When setting up the service, "users will be asked to link a debit card from Wallet as their loan repayment method". Sensibly, paying back by credit cards will not be allowed "to help prevent users from taking on more debt to pay back loans". The service will leverage Mastercard Installments "so merchants that accept Apple Pay do not need to do anything to implement Apple Pay Later for their customers", which clears an important adoption hurdle. When the customer is approved for the loan, a virtual Mastercard card is created with the value up to the approved amount. That card is used by Apple Pay Later to pay the merchant in full and is completely invisible to the customer.
One of the big questions is how Apple will make money from this. It's fairly obvious that one goal is to make Apple Pay more attractive and to increase the number of transactions, for which, as we know, Apple takes a cut of interchange. But would there be any additional fee for merchants for accepting an Apple Pay Later transaction, similar to what BNPL providers like Klarna and Affirm charge? Our current understanding is that there won't be, as the only requirement for the merchant seems to be the ability to accept Apple Pay online or in-app, which typically does not incur any additional charges beyond what they pay for card acceptance.
Also, while there are no stated fees or interest charges for consumers, what happens if they don’t/ can’t pay? The press release warns the customer about the potential risk of being hit with charges from their bank if there is non-sufficient funds for a debit card transaction. But the customer is also allowed to turn off autopay, the automatic collection of instalment payment via debit card. In fact, Apple website even says that "If you have autopay enabled and your payment is declined, autopay is turned off to prevent overdrafting your bank account." What happens then? Apple must be expecting that they can keep the risk of non-payments low by keeping the amount limited and the pay-back window short, and by carefully managing which customers get approved; as well as that the increased revenue from a higher number of transactions would outweigh the cost of providing a short-term loan.
It's worth noting that the loan will be provided by a new Apple entity, Apple Financing LLC, which is now responsible for credit assessment and lending, rather than Goldman Sachs, which is retained as a sponsor bank to issue those virtual Mastercard cards. While Apple has a strong balance sheet and plenty of cash, is that the best use of it? It also moves Apple another step closer to direct competition with banks and potentially increasing regulatory scrutiny.
Which brings us back to Paze. When the bank wallet was originally announced, we noted that its focus on online/ e-commerce rather than in-store transactions was likely to be a pre-emptive measure: Apple Pay and Google Pay were not as widely accepted online as they were in the stores and perhaps banks saw the opportunity there. Now, if Apple Pay Later takes off, it should boost Apple Pay’s profile online/ for e-commerce, and would only strengthen the desire of banks to compete with their own alternative.
For now, it remains the battle of words. Paze pilots with customers are set to begin in June, while Apple began "inviting select users to access a prerelease version of Apple Pay Later, with plans to offer it to all eligible users in the coming months", and the success is not guaranteed for either service. However, the US consumers should soon see (even) more choice for paying online, and it will be up to them and the merchants to decide which ones they like the most.