Apple Inc. (NASDAQ:AAPL) plans to offer buy-it-now, pay-later (BNPL) services in the U.S. despite fears of a potential market squeeze as more vendors crack in the sector amid growing borrowing and consumer spending.
Apple intends to launch its BNPL offering later in 2022 through its Apple Pay mobile payment and digital wallet service. Called Apple Pay Later, the offering will require the tech giant to underwrite loans and provide funds to users, as well as absorb any losses that may be incurred when borrowers default on their repayment obligations.
Apple’s BNPL comes at a time when shares of fintech companies providing similar services have underperformed due to various payment system issues. Some names that have recently underperformed S&P 500 financial stocks are Affirm Holdings (NASDAQ:AFRM), Australia’s Zip Co. (ASX:ZIP), PayPal (NASDAQ:PYPL) and Block Inc. (NYSE:SQ) , which acquired Afterpay.
These names represent a shrinking slice of BNPL’s playing field, as more players enter the game, there are also concerns about further market share and price squeezes. Plus, there are other unique risks associated with the service – credit fears that have never been tested in a downturn.
Amid all the concerns, Apple secured lending licenses through a subsidiary in most states across the country, giving it the green light to offer its own brand of payment plans.
The competition heats up
At this time in 2021, 14 companies have already launched BNPL services in the United States. The country led the world in terms of BNPL providers, followed by Europe. The appeal of the service has also infiltrated other markets, with growth seen in Australia, New Zealand, India and other parts of Asia.
The sector shows no signs of slowing down despite all the risks associated with it.
However, with many established players already in the game, there seems to be limited space for new entrants, even when it’s a big name like Apple.
In the United States, most of the market is divided between Klarna, Afterpay and Affirm, leaving the other players to compete for about a quarter of the market. These three, plus PayPal, generated combined revenue of over $3.2 billion in 2021.
“The BNPL market is maturing, and unless a new player has a differentiated approach and can offer additional services to consumers and merchants, it will be difficult for new entrants,” said Melissa Guzy, co. -founder and managing partner of fintech-focused venture capital firm Arbor Ventures.
The good thing for Apple is that it’s not entirely new to the game. In 2021, it had a partnership with market leader Affirm. The partnership, which launched in Canada, allowed Affirm’s PayBright users to purchase Apple devices over a 12 or 24 month term.
“What is clear today is that a new entrant will need significant capital upfront for marketing and gaining position on the checkout page,” Guzy noted.
Some other relatively new players on the BNPL playing field are financial heavyweight Mastercard and card network Visa. Within existing players, there have also been a series of consolidations, including PayPal’s $2.7 billion purchase of Japanese platform BNPL Paidy and the acquisition of Afterpay by defunct Square Inc. .for $29 billion.
And the banks?
With all the focus on the BNPL sector, one wonders how traditional lenders are playing into this evolution of payment services. Well, they shouldn’t be left out, with many launching their own BNPL services, especially as the industry’s growth comes with shrinking credit card volumes.
Banks want to tap into the market, and with mobile apps already in place, they want to capitalize on the customer base they already have. And why wouldn’t they, right? According to Insider Intelligence, the BNPL offering will represent $680 billion in trading volume worldwide by 2025.
While participation in the industry is quickly becoming a necessity for lenders who risk losing business to these alternative forms of financing, it is always best that they go about it smartly and strategically.
Some lenders, such as Australia’s Westpac Banking Corp. (ASX:WBC) have partnered with existing BNPL service providers to get a feel for the industry. Meanwhile, others are offering differentiated offers that they believe will appeal to customers, such as Royal Bank of Canada and its PayPlan offering in partnership with digital payments company Bread. In the US, Barclays has partnered with Amount to offer merchants point-of-sale (POS) financing under the merchant’s own brand.
Whichever way they choose to do so, banks will certainly not miss the opportunity to take advantage of BNPL’s growing popularity. They couldn’t ignore the continued growth of this payment system and rather than resist it, the best game for traditional lenders is to find new avenues where they can make their mark and continue to evolve with technologies and behaviors. ever-changing customers.
