Why is Apple getting into lending?


It’s the highest form of flattery, but is Apple really trying to copy Klarna? This is the claim of the Swedish company, which pioneered the so-called “buy now, pay later” credit. Last week, Apple announced that it would also offer deferred payments via Apple Pay, as well as the possibility of splitting refunds into several installments. It’s something Klarna has been whipping up for over a decade. And it’s already hugely popular: nearly a quarter of UK shoppers have used Klarna’s services. Now its founder Sebastian Siemiatkowski has accused Apple to notch its concept.

In fact, Klarna is not the only, or even the first, company to offer interest-free short-term loans. But it’s one of the biggest. I looked at Klarna last year after discovering a similar service offered by my startup bank, Monzo. This is something I was wary of at first: who wants to engage in a new form of borrowing? But I found it very useful. Most of these services do not earn money on interest or late fees, but charge retailers for using their payment system. I’m able to spread the cost of large purchases over several months so I don’t get caught out a week before payday. What retailers are getting, according to research by Klarna, is increased consumer spending, up around 34%.

I’ll be honest, I probably spend a little more than I otherwise would. I have now purchased several costumes through a “buy now, pay later” service as well as plane tickets. Do I regret it? No way. I was able to manage the big one-time purchases I wanted to make anyway much more easily – and I had no trouble paying off the diced bills. If I do, I can cut them even further, choosing to make repayments over six or 12 months for a fee, calculated and made perfectly clear on the app. If, for example, I want to spread the cost of two Eurostar tickets (£260) over six months instead of three, the app shows exactly what I’ll pay in interest (£7.80). That seems like an eminently reasonable deal. I haven’t yet decided to extend a payment – ​​which incurs interest – and am instead taking advantage of this completely free new form of financing.

Some are not convinced. The viewer Last year, editor Fraser Nelson spoke to Labor MP Stella Creasy about the rapid growth of ‘buy now, pay later’. She was concerned that these financial companies are trapping inexperienced spenders in debt, telling SpectatorTV: “Basically, if you can’t afford something at full price, spread the cost for most people – especially with a cost-of-living crisis – will end in tears.’ But the evidence tells a different story: Last year, Klarna’s default rate was around 0.64%, well below the medium credit card rate above 3 percent. Meanwhile, the average Klarna account was £45 in credit. No one wants to see people end up with unsustainable debt – let alone lenders, who ultimately bear the cost of irresponsible borrowing. But it doesn’t seem like people are treating this like a normal loan.

Apple’s encroachment into the industry is a sign of the popularity of this new form of credit. The Californian firm has always carefully protected its image, with 64% of consumers saying they trust the company, the fourth in Silicon Valley. If, as Ms. Creasy once said, Klarna is the “next Wonga in waiting”, would Apple really get involved? Wonga eventually went bankrupt because his 3,600% interest rate was considered usurious and ultimately restricted. Klarna – and soon Apple – are not in the same game. If you want to extend your Klarna refunds beyond the three-month interest-free period, you’ll pay a standard rate of 19%, slightly lower than what the cards charge normal credit. It’s unlikely that many UK spenders are about to see Apple debt collectors turn up on their doorsteps.

One question this raises is whether Apple is really a fair competitor. Their phones have become an integral part of our lives, with proprietary technologies like iMessenger and Apple Pay underpinning much of our daily existence. Is it really fair for a multinational juggernaut – larger than India’s economy – to burst into a booming industry and use its ubiquity to oust the entrepreneurs who dreamed up these lucrative innovations? The other question is whether this is really a sustainable form of business. Klarna recently laid off 10% of its staff, after changing its strategy of rapid expansion to a strategy of profitability. It seems a bit rum for Klarna to do all the hard work to change consumer behavior only for Apple to rush in and reap the rewards. But that’s capitalism, I guess. And I don’t see too many downsides. When corporations go to war, we, the consumers, almost always win.


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