Why is Apple getting into lending?

It’s the highest form of flattery, but is Apple really trying to copy Klarna? That’s the allegation made by the Swedish firm, which has led the way with so-called ‘buy now, pay later’ credit. Last week Apple announced that it too would be offering deferred payments via Apple Pay, as well as the option to split repayments over several instalments. It’s something that Klarna has been flogging for over a decade. And it’s already pretty popular: nearly a quarter of British shoppers have used Klarna’s services. Now its founder ​​Sebastian Siemiatkowski has accused Apple of nicking his concept.

In reality, Klarna isn’t the only, or even the first, company to offer short-term interest-free loans. But it is one of the largest. I looked into Klarna last year after coming across a similar service offered by my start-up bank, Monzo. It’s something I was initially wary of: who wants to get involved in a newfangled form of borrowing? But I’ve actually found it quite useful. Most of these services don’t make money off interest or late fees, instead they charge retailers to use their payment system. I’m able to split the cost of big purchases over several months so I don’t get caught short a week before payday. What the retailers get, according to research by Klarna, is an increase in consumer spending, up something like 34 per cent.

I’ll be honest, I probably do spend a bit more than I otherwise would. I’ve now bought several suits via a ‘buy now, pay later’ service as well as plane tickets. Do I regret it? Not at all. I’ve been able to manage big one-off purchases that I wanted to make anyway far more easily – and haven’t had any trouble repaying the diced-up bills. If I do, I can chop them up even further, choosing to make repayments over six or 12 months for a fee, one that is 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 makes perfectly clear what I’ll pay in interest (£7.80). It seems an eminently reasonable deal. I’ve yet to decide to lengthen a payment – thereby incurring interest – and am instead enjoying this new form of finance totally free of charge.

Some aren’t convinced. The Spectator editor Fraser Nelson last year spoke to Labour MP Stella Creasy about the rapid growth of ‘buy now, pay later’. She was concerned that these finance companies are trapping inexperienced spenders in debt, telling SpectatorTV: ‘Fundamentally, if you can’t afford something at full price, spreading out the cost for most people – especially with a cost-of-living crisis – is going to end in tears’. But the evidence tells a different story: last year, the rate of Klarna defaults was around 0.64 per cent, well below the average credit card rate of above 3 per cent. Meanwhile, the average Klarna account was £45 in credit. No one wants to see people ending up in unsustainable debt – least of all lenders, who ultimately bear the cost of irresponsible borrowing. But it doesn’t seem as though people are treating this like a normal loan.

Apple’s encroachment into the sector is a sign of just how popular this new form of credit has become. The Californian firm has always carefully protected its image, with 64 per cent of consumers saying they trust the company, the fourth-highest in Silicon Valley. If, as Ms Creasy once said, Klarna is the ‘next Wonga waiting to happen’, would Apple really be getting involved? Wonga ultimately went under because its 3,600 per cent interest rate was considered usurious and eventually restricted. Klarna – and soon Apple – aren’t in the same game. If you wish to extend your Klarna repayments beyond the three months interest-free period, you’ll pay a standard rate of 19 per cent, slightly below what normal credit cards charge. It’s doubtful that many British spenders are about to see Apple debt collectors turning up at their door.

One question it does raise is whether Apple is really a fair competitor anymore. Their phones have become an integral part of our lives, with proprietary tech like iMessenger and Apple Pay underpinning much of our everyday existence. Is it really fair for a multinational behemoth – larger than the economy of India – to barge into a burgeoning sector and use its ubiquity to squeeze out those entrepreneurs who dreamed up these moneymaking innovations? The other question is whether this is really a sustainable form of business. Klarna recently laid off 10 per cent of its staff, having switched strategy from rapid expansion to profitability. It seems a bit rum for Klarna to do all the hard work of changing consumers’ behaviour only for Apple to swoop in and reap the rewards. But that’s capitalism, I suppose. And I can’t see much of a downside. When companies go to war, it's almost always us consumers who win.