Apple's entry into 'buy now pay later' sector raises antitrust concerns, US regulator warns

Apple Pay Later feature is scheduled to become available in iOS16 later this year

The Consumer Financial Protection Bureau (CFPB), the US consumer finance regulator, is looking into Apple's recently announced 'buy now, pay later' (BNPL) scheme called Apple Pay Later.

According to CFPB director Rohit Chopra, Apple Pay Later programme raises "a host of issues," including antitrust and data privacy concerns.

In an interview with the Financial Times, Chopra said that CFPB was closely examining the "implications of Big Tech entering this space" and mulling over a variety of issues, including whether Apple Pay Later might limit competition and innovation in the market.

The Apple Pay Later feature was unveiled at WWDC and is scheduled to become available in iOS16 later this year.

The feature will enable Apple Pay users to split the total cost of an Apple Pay purchase into four equal payments that must be completed over the period of six weeks without incurring any additional fees.

Apple Pay Later works in a manner similar to those of existing BNPL services provided by businesses such as PayPal, Klarna and Affirm.

Apple will, however, underwrite and finance the short-term loans, in contrast to previous lending services that are offered in collaboration with banking partners. Merchants can opt to participate in the programme without have any effect on when they are paid.

Apple will still profit from the service despite the lack of fees and interest charges, and users have been advised to use it carefully.

Apple will provide the service via the Mastercard network, the same network that it uses for its Apple Card credit card.

As one of its strategies for preventing fraud, Apple will reportedly utilise the customer's Apple ID history.

The CFPB's antitrust concern seems to be that Apple may have access to a lot of consumer data via its use of Apple Pay, and that it may use that data to give itself an unfair advantage over rival BNPL services. Additionally, the use of this data creates privacy concerns.

"Is it being combined with browsing history, geolocation history, health data, other apps?" Chopra said.

In respect to Apple Pay, the regulator has previously asked Apple to provide an explanation of how the company collects and utilises customer data. Similar inquiries have been made to PayPal, Google, Facebook, Amazon and Facebook.

The CFPB is also worried that the BNPL programme would lead to increased consumer debt. Due to the short-term nature of the funding, these schemes are not often considered as part of indebtedness; but, Chopra thinks that should change.

"In order to have real visibility into the state of household balance sheets, we can't just look at credit card debt or auto loan debt," he noted.

"We've got to now look at buy now, pay later debt as well."

The regulator has already requested data from the leading BNPL players Afterpay, Affirm, Klarna, PayPal, and Zip in order to determine whether any regulatory controls are necessary.

CFPB has been keeping an eye on the BNPL sector even before Apple entered the market. During the coronavirus pandemic, this sector grew significantly, prompting questions about credit reporting, consumer protection, and debt.

"Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and ecommerce more broadly," Chopra said.

Apple told the FT in a statement that it was "glad to offer customers a choice which prioritises their financial health and privacy with Apple Pay Later", and is looking forward "to working with the CFPB to answer any questions they may have".