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PayPal cofounder Max Levchin’s network of tiny banks could help Apple with its Goldman Sachs issue

David Paul Morris—Bloomberg/Getty Images

Apple on Tuesday revealed a new way for customers to take out loans. Buried deep in a press release on new software products available this fall, the Cupertino-based firm shared that users in the U.S. will be able to “apply for loans directly through Affirm when they check out with Apple Pay.” Affirm Holdings, a San Francisco–based fintech that lets users spread out payments over months without incurring late fees or interest—a process called “buy now, pay later,” or BNPL—confirmed the deal in investor documents.

Affirm’s stock jumped 11% on Tuesday to a high of $33.98, still well below its $52.48 peak over the past year. Since then, the stock reached a high of $38.16 and was trading near $36 at the time of publication.

What’s interesting about the partnership is Apple already has a bank providing very similar services: Goldman Sachs. But multiple reports that cite people with knowledge of the matter have said the relationship is on the rocks—and could be on ice by this fall. Though Apple didn’t respond to requests for comment on whether the deal with Goldman would continue, it did confirm the Affirm deal won’t change those plans, whatever they are. Goldman didn’t respond to a request for comment. But multiple analysts who spoke to Fortune are operating under the assumption the deal is off—or soon will be.

By all outward appearances, the Affirm partnership looks like a great replacement for Goldman’s BNPL offering, according to Gil Luria, managing director at wealth management firm D.A. Davidson. After all, U.S. regulators said last month they would treat BNPL the same as credit cards. While fintechs like Affirm may not replace banks in the eyes of users, they, and the network of smaller, mostly state banks that support them, could someday soon compete with the largest banks in the world.


“From a regulatory perspective, and really from an intellectual perspective, there's not a lot of difference between a credit card product and a ‘buy now, pay later’ product,” says Luria. “In terms of the consumer perception, they are different products. And so it’s hard to imagine that Apple will not have a credit card offering as part of its Apple wallet, even if it is providing a consumer credit through another type of product.”

PayPal cofounder Max Levchin launched Affirm in March 2012 to build new kinds of payment products enabled by the internet. Almost right out of the gate, it competed against Apple. In October 2014, Apple launched Apple Pay enabling customers to use their iPhones to pay with credit cards issued by Bank of America, Capital One, Chase, Citi, and Wells Fargo.

In the fall of 2016, Affirm launched a service that let people choose how they wanted to pay for goods, which morphed into what is now known as BNPL. Apple countered three years later by joining forces with Goldman Sachs to offer an almost identical product. The offering was so similar that when Apple last year made it available in the U.S., Reuters described the event as threatening to fintechs like Affirm.

While both Affirm’s and Apple’s services sound an awful lot like a credit card minus the card, neither was regulated as such.

Though Apple doesn’t charge user fees, most BNPL companies make money through some combination of fees to users and merchants. Apple doesn’t break down its BNPL revenue, but Fortune Business Insights estimates the total market was $30 billion last year. Despite the promising revenue stream, just eight months after the Goldman partnership was publicized, Apple reportedly gave the investment bank a plan whereby the deal could be unwound by as early as November.

Enter Affirm. The same day Affirm publicized the partnership, the company’s site elaborated: “Later this year, eligible U.S. customers checking out online or in-app with Apple Pay on iPhone and iPad will be able to apply to pay over time with Affirm for eligible transactions.”

To help fulfill customer loans, Affirm works with FDIC-insured, state-chartered private banks like Cross River Bank, from New Jersey, Celtic Bank from Utah, and Lead Bank from Missouri. In April, Memphis-based Evolve Bank & Trust, which issues the Affirm credit card, had customer funds associated with pig-butchering scams seized. It also provided banking services for fintech Synapse, which went bankrupt in May. Evolve did not respond to a request for comment.

That same month, the Consumer Financial Protection Bureau, an independent U.S. government agency regulating the financial sector, determined that BNPL lenders are credit card providers and “must provide consumers some key legal protections and rights that apply to conventional credit cards.” While the additional costs of complying with the regulation will likely eat into Affirm’s bottom line, a written response from the company said the decision “aligned with responsibly extending access to credit.”

Though regulators now view credit cards and BNPL as the same thing, Luria says the perception that they are different will likely lead Apple to seek a new, more traditional banking partner—should the Goldman deal officially dissolve: “It’s very safe to assume that Apple will not have a hard time finding a replacement.”

If the Goldman deal does evaporate, there are dozens of potential candidates to replace it, including Providence-based Citizens Bank. Nationally chartered, Citizens is one of the few publicly traded banks working with Apple. Since 2014, it’s been letting its users prove their identity using the iPhone’s fingerprint technology and provides financing for customers who want to upgrade phones. Citizens has $222 billion in assets. A bank representative says that contrary to other reports, the services are neither a credit card nor BNPL, and the Affirm deal won’t impact the firm’s work. “We don’t anticipate any changes,” the spokesperson said.

State-chartered Green Dot Bank has $5.3 billion in assets and provides banking services for Apple Cash, which lets users send each other money. A Green Dot representative also confirms the relationship will continue unchanged.

Apple’s having so many banking partners makes sense, according to Dan Ives, a managing director and senior equity analyst at Wedbush Securities. Ives says the increasingly competitive series of financial products offered by Apple is likely intentional—it’s designed to more efficiently capitalize on the iPhone’s estimated 1 billion users.

“Apple has many partnerships, and they do not bet solely on one partner,” says Ives. “This a smart move by Cupertino in this space: Bet on the winners, and one will emerge.”

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