Apple’s entry could shake up buy now, pay later stocks
Apple is the latest competitor in a booming sector. What does this mean for buy now, pay later companies?
Buy now, pay later – the payment method that exploded in popularity during the pandemic – has a new contender. And it’s the largest tech company in the world.
Apple (AAPL) this week announced a new Apple Pay feature called Apple Pay Later, the tech behemoth’s take on buy now, pay later (BNPL) that lets Apple users split the cost of any Apple Pay purchase into 4 equal, interest-free payments. It applies to any Apple Pay purchase – not just purchases made at Apple.
The service is initially launching in the US only – it’s likely to appear in the autumn. There’s no word on a UK launch date yet.
Apple shares
The tech giant is the latest entrant into the hot BNPL market that has drawn significant venture capital money, and criticism. And while shares of Apple closed only slightly higher on Monday (US time), largely in line with the tech-heavy NASDAQ Composite, the announcement has already made waves. For a 5-year view of Apple shares, see our dedicated guide.
Shares of Affirm (AFRM), a leading company in the space in the US, saw its stock fall over 5% on the news, as investors evaluate Apple’s future impact on the industry and how much market share it will gobble up. For a 5-year view of the performance of this share, see our dedicated guide. It bounced back somewhat Tuesday US time, and other players including PayPal (PYPL) showed small gains. So investors aren’t running away just yet. (Klarna is still a privately held company, so does not trade on a stock exchange.)
Apple Pay Later
Announced during its 2022 Apple Worldwide Developers Conference, Apple Pay Later lets you split the cost of any Apple Pay purchase into 4 equal payments, which you can then pay over 6 weeks with zero interest and no fees. Upcoming payments are managed through Apple Wallet and it’s available everywhere Apple Pay is available.
Apple first announced plans last year to offer BNPL service, expanding its relationship with Goldman Sachs, which has been Apple’s US partner for the Apple Card credit card since 2019.
It’s Apple’s latest move to expand its Apple Pay features. Apple Pay use in the UK was bigger than in either the US or Canada by early 2022.
What is buy now, pay later?
Buy now, pay later is a type of instalment loan that lets consumers split a purchase into smaller, interest-free payments. The number of instalments and whether a down payment is required largely depends on the scheme, the size of the purchase and, in some cases, the customer’s creditworthiness.
The application process is quick and is integrated with the checkout process, providing customers with a seamless online purchasing experience and merchants with an additional tool for increasing sales.
Importantly, BNPL allows customers to take possession of the merchandise before they’ve paid in full. It’s touted by some as a safer alternative to credit card debt and grew wildly popular during the pandemic, as people ramped up their online spending.
An increasing number of retailers and payment providers are adopting BNPL a payment option. Investors have been flocking to the movement, too. BNPL companies raised a record US$1.5 billion (£79.8 million) in funding in 2020 — a 42% increase over 2019.
Regulatory scrutiny
BNPL is largely unregulated in the UK, and critics say BNPL services normalise debt, typically don’t include proper affordability checks and don’t offer many of the protections that come with other types of credit.
In the UK, the government plans to change the law to bring some of the current forms of unregulated BNPL products into regulation by the Financial Conduct Authority.
Thinking of buying Apple stock?
Pay Later might not be big enough to move Apple stock significantly just yet, though the news may pressure the competition — specifically companies that have made a sole business around the service.
Lisa Ellis, partner at US research firm MoffettNathanson, told Yahoo Finance Live: “It’s probably not a big deal to have Apple announce this product at this point,” given there’s “nothing differentiated about it” when compared to others in the market.
Still, Ellis said she expects to see the landscape change over in the near future as standalone BNPL companies lose market share.
“I think what we’re going to see more likely over these next 12 to 18 months is sort of a shakeout. Right now you’ll go to some merchant websites and there’ll be 3 different offerings — Affirm, Afterpay and Klarna … I think we’ll start to see some of that shake out.”