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Global behemoth Apple has set its eyes on exploring a new frontier — Buy Now, Pay Later (BNPL) — with its new product Apple Pay Later.
Given that the company is already capable of attracting the masses to its products and has huge brand power, banks, lenders and other incumbent BNPL players may be feeling intimidated. Take Affirm, a US-based BNPL provider: After the news, shares of the company sank 17%.
Apple Pay Later is not the company’s first move into finance, though. Back in 2019, the company partnered with Goldman Sachs to create Apple Card, which offered loans for device purchases. So, it is no surprise that Apple would jump on the bandwagon to offer BNPL.
This time, however, Apple has taken a different approach: Instead of relying completely on lending services or banking partners it has created Apple Financing LLC. Apple Pay and Wallet users can apply for Apple Pay Later during checkout and require a debit card to make payments. When approved, they can start using Apple Pay Later at any merchant that accepts Apple Pay.
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Enterprise and tech decision-makers may just view this as another split payment method. But diving deeper into the launch of Apple Pay Later can unlock some valuable insights into the BNPL industry.
Even during turbulent times, the BNPL industry continues to grow
Although BNPL solutions have caught the attention of millions of customers, particularly in the US, Europe and Australia, some providers have been facing tough times. Rising inflation, slowing economic growth and climbing borrowing costs have put BNPL companies in a difficult position. The Swedish BNPL company Klarna, for instance, laid off 10% of its global workforce.
However, Apple is making a big move during turbulent times simply because there is still a high demand for BNPL. In fact, 60% of shoppers say that inflation is driving them to use BNPL products, according to a survey from Credit Karma.
The U.S. consumer watchdog is on the case
BNPL is a rich source of consumer data: By cutting out the third-party providers, Apple will be able to retain full control over its customers and better understand their behavior. The valuable insights coming from Apple Pay Later will allow the company to predict future consumption patterns and design better marketing strategies. But you know what they say: “With great power comes great responsibility.”
As Consumer Financial Protection Bureau (CFPB) director Rohit Chopra said: “Any tech giant that has a lot of control over a mobile operating system is going to have unique advantages to exploit data and eCommerce more broadly.”
This clearly indicates that the top U.S. consumer watchdog is keeping a close eye on Apple. In fact, the CFPB raised data privacy and anti-trust concerns for Apple Pay Later. More than ever, the company will need to run a tight ship when it comes to consumer data protection.
On top of that, the CFPB opened an inquiry into five BNPL providers late last year — Affirm, Afterpay, Klarna, PayPal and Zip — with the purpose of protecting consumers from accumulating debt. They recently released a BNPL report based on this inquiry.
As the U.S. consumer entity plans to regulate BNPL, businesses offering different BNPL options to consumers must be on top of regulatory investigations, making sure they follow transparent, fair and responsible lending practices. This will also lead to customer retention.
That’s why Apple made it clear in its press release that the company designed Apple Pay Later with users’ financial health in mind. Customers can also easily view, track and repay payments within Wallet.
Apple’s entry into BNPL will attract more financial institutions and merchants
There have been numerous discussions about whether Apple Pay Later is a threat to major BNPL providers. The truth is that this payment solution will not shake up the industry as much as the other providers might fear. This is because it is limited to Apple Pay users.
Make no mistake, the arrival of Apple Pay Later is an important development and can create a chain reaction in the industry, as it is proof that BNPL has taken root in the market. Therefore, we can anticipate more banks, lenders, and merchants entering the space in a quest to stand out from the competition.
When larger financial institutions move into the BNPL space, merchants will also benefit. To illustrate this, direct-to-consumer BNPL transaction fees may cost as high as 3 to 6% of the purchase value (this is how installment payment providers make money). Banks can offer merchants more competitive transaction fees as low as 1 to 3%.
The bottom line is that exploring why and how big tech entered the BNPL space can provide important industry lessons. And businesses working in sectors like ecommerce can use these takeaways to navigate the BNPL and begin their own journey.
Yaacov Martin is CEO and cofounder of Jifiti.
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