‘It’s actually a threat’: Apple crashes the buy now, pay later party, putting fintechs on high alert

Tech monolith Apple has stepped into the buy now, pay later arena with Apple Pay Later, offering consumers yet another pay-in-four system and putting industry innovators like Afterpay and Zip on notice.

Announced overnight as part of its international developer conference, Apple says Apple Pay Later users will be able to split their purchases into four even payments spread over six weeks.

Like existing BNPL options, Apple Pay Later will not charge interest on those purchases.

However, unlike its major competitors, Apple said Apple Pay Later repayments will not attract late fees.

TechCrunch also reports the system will operate anywhere Apple Pay is accepted, theoretically adding BNPL functionality to millions of bricks-and-mortar stores, or online retailers yet to sign up for existing pay-in-four services.

Apple Pay Later will debut in the US market when Apple launches iOS 16 later this year.

Apple announces its buy now, pay later product, Apple Pay Later, which will allow you to buy things wherever Apple Pay is accepted and then pay in 4 payments over 6 weeks. #WWDC22 https://t.co/AdGEDP5iNm pic.twitter.com/mvPHQxLin1

— CNBC (@CNBC) June 6, 2022

Apple’s BNPL project could be a major challenge for existing players

The tech giant’s long-awaited foray into BNPL should sound alarm bells for other players in the space, says Dr Angel Zhong, a senior lecturer in finance at RMIT University.

“Apple has the money to expand into buy now, pay later services, so I’d say it’s actually a threat to the existing crowded buy now, pay later industry,” she told SmartCompany.

The value of major BNPL stocks have also taken a beating in recent months, after 18 months of phenomenal growth gave way to market jitters and the spectre of lower consumer spending in the months ahead.

Klarna, one of Europe’s major BNPL players, recently laid off 560 employees in response to growing cost pressures.

Apple is no stranger to that market volatility, with its share value having fallen around 20% since early January.

But the tech company has deep pockets, Zhong says, putting it in a strong position against BNPL fintechs yet to turn a profit.

Apple could also squeeze existing players based on its fee structure.

The Californian juggernaut is yet to fully detail its merchant fees, but it has revealed Apple Pay Later will operate on the Mastercard network.

If it were to offer BNPL services at standard Mastercard transaction rates, it could significantly undercut the merchant fees charged by standalone BNPL providers.

“Perhaps that will also force other buy now, pay later service providers to lower their fees, which will be beneficial for consumers,” Zhong suggests.

Another BNPL option intensifies calls for regulation

Consumer advocates say Apple joining the BNPL arms race is reason for Australian lawmakers to bring in tighter controls over the sector.

While traditional banks like Commonwealth Bank and NAB now also offer pay-in-four options, the sector at large is broadly exempt from Australian credit regulation as providers don’t directly charge interest to consumers.

Critics say the self-regulatory efforts of BNPL providers do not go far enough to protect consumers from taking on debts they cannot afford or falling into ‘debt spirals’.

Responding to a Sydney Morning Herald rundown of Apple’s announcement, CHOICE CEO Alan Kirkland said “it’s time for government to step in, before more people are harmed by unregulated credit”.

“Over the past few years, the call for regulation has become louder and louder,” says Zhong.

“And with Apple entering the space, that means the coverage of buy now, pay later will become greater. So there is a higher probability that it will be regulated to protect the consumer.”