New MA Rate Tier for Installments (ApplePay Later)?

Quick 18 Aug update to Aug 1 blog below. This new rate tier was confirmed by Bloomberg this week. According to Bloomberg, Settlment product acceptance is optional for merchants (does not operate in Accept All Cards rule). Optional acceptance is quite surprising. I surveyed 3 top 10 merchants (non-grocers) and couldn’t find one that plans to sign up for the product (other than Apple).

Note that card based BNPL (consumer BNPL) has no proven market data showing increased conversions. My inclination is to believe Card based BNPL conversion will closely mirror a normal credit card. See the rationale in my blog Three Flavors of BNPL.

As I outlined in June, Apple Pay Later will be (est Oct)  is the first major launch customer of Mastercard Installments. A large retailer just related that Mastercard plans for a new rate tier to support this product. 

“Somewhere around 300 bps” – Top 5 US Merchant

One of the bigger questions surrounding ApplePay Later was economics as the WWDC presentation outlined a stunning consumer value prop: 0% interest and $0 fees

Mastercard’s highest interchange rate is currently 260bps (on World Elite).. So a 300bps “installment” rate would represent a significant increase. 

Merchants will have no choice but to accept this product (given accept all cards rule). With an overall MDR of ~330bps, Apple’s take should be about ~240bps. While I believe Apple can keep fraud rates quite low (~<10 bps), it will be interesting to see how they underwrite (ie quality) and corresponding credit losses. 

Whereas Apple Pay Later is for purchases outside of Apple, Apple’s future “Installments” will be for Apple products and will have a much lower fraud/NCL dynamic. As discussed, Apple is a top 5 global merchant with one of the best fraud and payment operations teams. Their products require users to register and assign their real identities (ex card) for use. My view is that Consumers care more about using their Apple products than electricity (or food/water).  Apple is thus uniquely positioned to execute here with: a unique team, established operational expertise, and strong incentives for consumers to stay “current” in payments. 

I believe PayLater is just the first “simple” product for the new Apple Finance organization. Apple Installments will be a much larger effort to driving Apple’s continued global sales growth. 

Banks and New Rate Tier

I find the prospects of rolling out a new “higher” rate tier in the face of Senator Dick Durbin’s new proposed bill interesting. I don’t see how this rate could be rolled out in the next 3 months. From my understanding MA has already made the commitment, it could provide “make whole” incentives to Apple to delay the new rate (political timing).

Apple’s participation in MA installments had established momentum, why wouldn’t every bank re-lable existing cards as installment products, then provide consumers with the option of transferring balances into their existing card revolving loan if they wish to “switch back” from a $0 fee 0% interest to the card rate (at any time)?

I’m not convinced that a new installment rate tier will occur, however, authoritative first-hand conversations point otherwise.

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