The entry of Apple into the competitive “buy now, pay later” industry has pushed the envelope for the fintech firms that pioneered the practise.
On Monday, Apple revealed plans to create its own “pay later” loans, adding to its portfolio of financial services products, which already includes mobile payments and credit cards. The service, known as Apple Pay Later, will allow consumers to pay for items in four equal monthly instalments with no interest.
This puts BNPL providers such as PayPal, Affirm, and Klarna in an uncomfortable position. The fear is that Apple, the world’s second-largest smartphone manufacturer and a $2 trillion company, will drive customers away from such services. Affirm’s stock has dropped 17 percent this week as a result of the announcement.
The BNPL market had already begun to exhibit signals of distress. Klarna lay off 10 percent of its global workforce the previous month, blaming the conflict in Ukraine and recession fears.
Rising inflation, increased borrowing rates, and sluggish economic development have all combined to cast doubt on the industry’s future. Borrowing prices have already risen, making debt more expensive for some BNPL enterprises.
“It’s going to end up in trouble because credit always has to unwind and get paid back,” Charles McManus, CEO of U.K. fintech firm ClearBank, told CNBC at the Money 20/20 Europe fintech conference in Amsterdam.
“As interest rates start rising and inflation starts rising, all the chickens will come home to roost.”
McManus believes the industry is putting people in debt they can’t afford to repay and should be controlled as a result. The United Kingdom is attempting to push through BNPL legislation, while US regulators have launched an investigation into the sector.
“Do I pay my gas bill or do I pay off the armchair I bought three years ago on interest-free credit that is coming due?” McManus said, warning that “excesses always come back.”
Apple stated it will manage loans and credit checks for Apple Pay Later through an internal company, removing Goldman Sachs from the mix (the business previously collaborated with on its credit card). This is a key step that will allow Apple to play a considerably larger role in financial services than it presently does.
Klarna CEO Sebastian Siemiatkowski called Apple Pay Later’s launch “wonderful” for customers and defended his company’s business model.
“This is a better model for consumers than the traditional one of credit cards,” he said. Klarna is a more agile lender compared to banks and “actually extremely recession-proof,” Siemiatkowski added.
Apple’s BNPL function, according to Ken Serdons, chief commercial officer of Dutch payments start-up Mollie, “raises the standard” for fintechs working in the sector. Mollie provides instalment loans through third-party agreements.
“The BNPL space is getting crowded with lots of new players still entering the market,” he said.
“It will be hard for players with a subpar proposition to compete effectively against the best players out there.”
However, James Allum, senior vice president of Europe at Payoneer, believes there is enough room in the industry for a variety of competitors to compete.
“Businesses should be looking at opportunities for collaboration rather than competition and threats,” he said.
(Adapted from CNBC.com)