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Thesis 2/6: Apple Pay Later is disrupting the BNPL market and will first affect Klarna, Affirm et al

21.08.2022
2 min.
Christian C. Waldheim

Tech giant Apple is taking on yet another market. After revolutionizing the music industry with iTunes, conquering the TV and entertainment world with Apple TV, entering the payment industry with Apple Pay, the most well-known company in the world has now joined the rapidly growing “buy now, pay later” market with Apple Pay Later. Apple Pay Later will allow U.S. users to pay for purchases in four installments over six weeks. They won’t charge any interest or fees to the customer, and the service can be used for any transaction completed using Apple Pay for amounts up to $1.000. Even though new details will be released in due course, one thing is certain, Apple will benefit from its enormous market and brand power, coupled with their capability to attract millions to its products and services. 

 

This new BNPL player is dropping jaws all over the industry. While competitors such as Klarna and Affirm have invested massive resources into partnering with retailers, the integration between Apple Pay and Apple Pay Later provides an important competitive advantage. The new service is integrated directly into the iPhone’s Wallet app, which comes installed on every new iPhone and will automatically take over existing customers and retailers with new ones already lining up. Another detail has caught the attention of not only the competition and has raised an important question: How does Apple plan on making money, without charging interest or fees? While the likes of Klarna & co are known for its notorious and eye-brow raising business model of aggressively charging customers reminder fees, Apple as one of the most valuable companies in the world, has the possibility to use their own liquidity, namely $73 billion which is why they will not be forced to charge interest. They will however charge merchant fees for every transaction made over Apple Pay Later.

In the current economic environment with market players such as Klarna, Affirm and the likes struggling for the attention of investors, letting go of employees and dealing with dropping stocks, there is no doubt that Apple’s market entry is a validation of buy now, pay later as a payment method. However, competitors should not worry. It is important to stress that Apple is currently launching only in the U.S., where its market size is around 50%. As of now, details on possible expansions outside the U.S. have not been released yet. Should Apple launch worldwide though, the market size is even smaller – only around 22%, which leaves more than enough room for other players and products.

Since the feature only enables users to pay for purchases of $1,000 in four installments over six weeks, it is mostly fitting for convenience goods and users who have available liquidity. This means that Apple is only addressing a specific segment of products and revenues. High value purchases like e-bikes, furniture, durables and certain types of tech products are all segments which are very fitting for BNPL payment methods, but are for now not within Apple Pay Later’s scope. 

 

Although Apple has revolutionized many markets and has occupied the leading position in the field of technology for many years, the BNPL industry will definitely not see Apple leading the way in this regard. It is undeniable that the company’s new BNPL feature is a very welcome part of Apple’s ecosystem, that their customers are excited to start applying in their daily lives, adding flexibility to their payments, but there is definitely room to grow to become even more competitive in the current BNPL market.