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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


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From the article:

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