Apple’s Pay Later installment credit scheme will live under a new lending subsidiary

The news that Apple would split its Apple Pay bill into installments hit the lending world hard. The new feature necessitated a bit of backstage reorganization at Apple, including a new subsidiary that will run it.

Users can use Apple Pay Later to pay for purchases with no interest or fees. This type of payment has been popular recently as an addition to online retail at checkout, where companies like Affirm and Klarna offer easy ways to overcome "confirm order" hesitancy.

Financial services are part of an industry with its own rules and regulations and Apple is a consumer tech company. There are certain standards that need to be met in order for an organization to be eligible for certain interest rates.

Apple has partnerships with payment providers and others on the financial side of things before, but Pay Later is the first time the company is handling the actual loans, risk management and credit checks itself. This may come as little surprise to anyone watching Apple's recent moves in fintech, adding a contactless card payment option for iPhone based checkout and then paying $150 million for the British banking startup Credit Kudos in March.

In order to do it internally, Apple had to form a wholly owned subsidiary called Apple Financing. The company will be doing the actual work of assessing and issuing credit in compliance with the usual requirements, and obtaining the necessary licenses to work in each regulatory jurisdiction. Everything goes up in flames.

It is important to note that Apple did not get a bank charter for its new financing company. Pay Later uses the Mastercard Installments program as its basis, rather than taking on that role itself.

You can't pay down credit with more credit, so you have to use a debit card. Apple will conduct a soft credit pull to make sure you are all good in the eyes of the credit gods.

The new feature is expected to cause a shift in the way payments are made. Apple will take an enormous bite out of their business with Pay Later; even if there are many businesses that don't take Apple Pay and wish to include installments, there will be competitive pressure to match Apple's minimal conditions. There are going to be serious changes to this corner.