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Why Klarna, Block, and Affirm should be worried about Apple’s buy-now-pay-later plan

June 7, 2022, 4:49 PM UTC

Any savvy customer knows there’s no such thing as a free lunch—especially when you’re doing business with a financial institution.

But when it comes to Apple and its venture into the buy-now-pay-later space, consumers may get an awfully cheap meal.

The world’s most valuable tech company made waves Monday by unveiling plans to offer a buy-now-pay-later (or BNPL) option on purchases made through Apple Pay, a move that takes aim at Klarna, Affirm, Block-owned Afterpay, and other earlier entrants into the multibillion-dollar market. 

In a slide shown at their Worldwide Developers Conference, Apple officials said the company’s BNPL terms include “four equal payments” and “zero interest and no fees”—phrases that suggest Apple users will face fewer costs for the service. Other companies offering BNPL sometimes bake interest rates into payment plans, charge late fees, or report delinquent payments to credit score institutions. (Some of these practices prompted an inquiry launched in December by the Consumer Financial Protection Bureau.)

Investors in BNPL companies understandably responded to Apple’s announcement with concern, with shares of Affirm down 7% since markets opened Monday and Block’s stock price falling 2% during that time. Sweden-based Klarna, the BNPL industry’s largest player, remains privately held.

Any panic rests on a speculative assumption about Apple’s intentions for its BNPL system. 

As is often the case, Apple unveiled scant details at WWDC about specific terms of its latest feature, which is expected to become available to U.S. customers in September. Most notably, the company didn’t elaborate on any consequences of defaulting on payments, which could have a dramatic impact on consumer usage.

Apple also didn’t explain whether it will charge retailers any fees when customers use the BNPL option, a primary revenue driver for the industry’s current heavyweights. If Apple isn’t earning cash through merchant fees or late-pay penalties, it’s hard to see how BNPL becomes anything other than a sunk cost for the company.

However, Affirm and Block sellers have good reason to fear Monday’s news.

Apple’s interest in the sector goes far beyond immediate profits from BNPL, potentially giving the company an advantage over its fintech rivals. As Bloomberg reported in March, Apple is working to build a sprawling, in-house financial technology unit, with minimal reliance on outside partners.

“The push would turn the company into a bigger force in financial services, building on a lineup that already includes an Apple-branded credit card, peer-to-peer payments, the Wallet app and a mechanism for merchants to accept credit cards from an iPhone,” Bloomberg reported.

By further integrating financial services such as BNPL into the iPhone, which still accounts for slightly more than half the company’s $365.8 billion in sales last fiscal year, Apple could make the hardware all the more indispensable. Even if BNPL doesn’t turn a tidy profit, any boost in iPhone revenue could easily offset those losses.

As Inc. tech columnist Jason Aten wrote Tuesday: “I don’t think Apple is disrupting this market just for the money. I mean, of course, Apple likes making money. It’s also very good at it. I just think there’s a better reason, which is to own the entire experience. After all, Apple doesn’t even take a cut of Apple Pay transactions.”

The largest BNPL players still have avenues to success. 

Affirm, for example, boasts an extensive network of merchant partners that integrate the company’s BNPL technology on their platforms, agreements that help boost e-commerce sales. Some of Affirm’s largest vendors, including Amazon and Shopify, certainly won’t want to hand additional power over to Apple, a top competitor in other ventures.

Even if Apple swallows up some BNPL market share, there could be plenty of revenue to go around. Analysts at KeyBanc Capital Markets wrote that Apple’s entry into BNPL might be an “important accelerant for broader industry adoption,” while a Morgan Stanley analyst opined that Apple’s clientele likely differs from that of Affirm and Block, per Barron’s.

While the larger BNPL market shakes out, its current heavyweights are now on notice: Apple is coming to take your lunch.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Crypto claims victory. A long-awaited U.S. Senate bill targeting cryptocurrency companies would give regulatory authority over the sector to the Commodity Futures Trading Commission, the industry’s preferred watchdog, the Washington Post reported Tuesday. The bipartisan bill, sponsored by Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), marks the first major legislative attempt to craft sweeping regulations guiding the relatively new industry, which faces renewed scrutiny after the collapse of a $60 billion cryptocurrency token last month. Critics of the crypto industry want the Securities and Exchange Commission to take responsibility for regulating the sector.

A Texas two-step. Texas Attorney General Ken Paxton said Monday that his office is investigating allegations that Twitter has falsely reported the number of bot accounts on its social media platform, CNBC reported. The news broke on the same day that Tesla CEO and Texas resident Elon Musk threatened to back out of his agreed-upon $44 billion acquisition of the company, citing Twitter’s reluctance to provide more information about the prevalence of bots. Twitter has denied claims that it understated bot accounts, while legal experts questioned whether Paxton, a Republican expected to win reelection this November, is the proper authority to review allegations of false statements by a publicly traded company.

Kids are the future. Several tech giants called Tuesday on the Biden administration to ease rules that force children of highly skilled immigrant workers to obtain visas or leave the country once they turn 21, Axios reported. The coalition, which included Google, Amazon, IBM, Salesforce, and Uber, argued that the children could become vital members of the tech workforce amid fierce competition from global rivals. Department of Homeland Security Secretary Alejandro Mayorkas has previously acknowledged the need for legislation addressing the immigration status of such children, though a bill authorizing a pathway to legal status remains mired in Congress.

Can’t keep up. The value of Bitcoin once again fell below $30,000 as of early Tuesday afternoon, the result of a one-day decline of 5% in the cryptocurrency’s price. Bloomberg reported that the tumble followed several indicators of economic uncertainty across the globe, blunting a recent rebound in Bitcoin’s price. The cryptocurrency has hovered near $30,000 since mid-May, trading at roughly half the price of its November high.

FOOD FOR THOUGHT

A dash of innovation. As the world patiently waits on an Apple car, the iPhone maker continues to make inroads on vehicle software. As Reuters reported Monday, Apple’s unveiling of new car features, such as a digital dashboard displaying speed and gas mileage, shows that the company is determined to dominate all types of screens. Apple said it’s talking with several automakers about introducing the technology into vehicles later next year, including Ford, Honda, and Mercedes-Benz.

From the article:

The software connects more deeply into core driving systems than prior versions that were limited to the vehicle’s infotainment displays for playing music and showing maps. 

While Apple’s car software has been in vehicles since 2014 and is currently available in more than 600 models—even including a few motorcycles—it is largely separate from the vehicle’s own operating systems. Vehicle owners must leave the system for even basic functions like adjusting a car’s climate controls, a shortcoming the updated system is designed to address.

IN CASE YOU MISSED IT

Apple just unveiled its biggest MacBook Air rethink in a decade. Here are 5 changes you need to know, by Mark Gurman and Bloomberg

Binance’s own popular cryptocurrency tanks on rumors of SEC investigation, by Christiaan Hetzner

Elon Musk looks like he’s trying to blow up his Twitter acquisition. Here’s how it may stick him with a $1 billion bill, by Tristan Bove

Apple may finally be ordered to make chargers just like everyone else, by Chloe Taylor

“Greenhouses on the moon”: After growing plants in lunar soil, scientists see huge implications for crops in outer space—and on earth, by Bernhard Warner

Web3 is not dead. Here’s what the crypto space will look like in 2030, by Maxim Galash

Bitcoin funds rake in new money as altcoin funds suffer, by Krisztian Sandor and CoinDesk

BEFORE YOU GO

Back to the drawing board. In the aftermath of the tragic Uvalde school shooting, there have been plenty of suggestions for how to prevent or minimize future carnage. This one is certainly among the most cockamamie: Taser drones. As Fortune’s Eamon Barrett wrote Tuesday, the CEO of Axon Enterprise, a company formerly known as Taser, wants to place drones equipped with stun guns in the ceilings of classrooms across the country. Axon chief Rick Smith argues that a trained pilot could activate the drone, using it to deploy Taser darts at an active shooter. Smith’s push prompted a mass resignation Monday by nine of 12 members serving on Axon’s A.I. ethics advisory board, who jointly stated the company “has fundamentally failed to embrace the values that we have tried to instill.”

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