Apple announced a new buy now, pay later (BNPL) option for customers shopping with retailers that accept Apple Pay. Under the new arrangement, iPhone and iPad users can take out short-term loans with Apple, ranging from $50 to $1,000, to be paid back in four installments over six weeks. Apple cited the need for BNPL options in economically turbulent times, with Jennifer Bailey, Apple’s VP of Apple Pay and Apple Wallet, stating that “there’s no one-size-fits-all approach when it comes to how people manage their finances.”

Apple’s BNPL offering carries zero fees and interest, provided that the loan is repaid on time, with those who don’t being disqualified from the scheme. However, data shows that one in ten US consumers who take out BNPL loans, often through firms like Affirm and Klarna, end up paying late fees. Nevertheless, Apple’s move has been viewed as “an aggressive and smart move” by Dan Ives, managing director and senior equity analyst at Wedbush Securities, and a “shot across the bow” at competitors.

Apple already has a large payments infrastructure and a large client base, which puts the company in a strong position to compete with existing lenders, according to economist Benedict Guttman-Kenney of the University of Chicago Booth School of Business. He also notes that Apple already offers BNPL-like financing options for Macbooks and iPhones, which are big-ticket items purchased through Apple stores.

However, Apple’s entry into the BNPL space could have wider ramifications, pushing more people into debt. Guttman-Kenney, who has researched the BNPL sector, found that some individuals charge the debt they rack up through BNPL schemes to their credit cards, suggesting that at least some users can’t afford to pay for their purchases.

Apple will soon open up access to a prerelease version of Apple Pay Later to a random selection of users. The payments process is offered through Apple subsidiary Apple Financing LLC, which will eventually report all loans made through the system to credit bureaus in the United States, meaning that any purchases made through loans offered by Apple Pay Later could impact users’ credit scores.

While the $43 billion BNPL market is still quite small in the $6.6 trillion US retail sales world, it is growing as customers who can’t get credit cards turn to BNPL plans. However, BNPL lenders are struggling with a rising number of defaults on their loans. In August 2022, shares in Affirm fell as the company announced an increase in delinquencies. Fitch Ratings also noted that “some of the largest BNPL providers have seen delinquency rates more than double over the past few quarters, while credit-card delinquency rates are relatively flat, underscoring the BNPL’s lower-asset quality.”

Nonetheless, Apple’s entry into the sector suggests that the company “has taken the view that BNPL can, in some form, be sustained, despite those adverse market headwinds,” according to Guttman-Kenney. Apple’s move into the BNPL space could trigger more scrutiny by the Consumer Financial Protection Bureau (CFPB), with the agency having raised concerns over BNPL lenders’ use of customer data to target people with advertising and lead generation. “It’ll be a challenge for regulators like the CFPB in how to deal with these big tech firms,” says Guttman-Kenney. “They’re not just tech firms anymore. They’re very much in the financial services space.”