Apple Pay Later Passes On Australia, Citing ’Regulatory Challenges’

August 31, 2023
One of Apple’s top executives has confirmed that the company has no immediate plans to launch its buy now, pay later product in Australia, despite an ongoing wipeout of local firms from the market.

One of Apple’s top executives has confirmed that the company has no immediate plans to launch its buy now, pay later (BNPL) product in Australia, despite an ongoing wipeout of local firms from the market.

Kyle Andeer, vice president of products and regulatory law at Apple, revealed the bigtech’s reservations about the Australian market during a parliamentary hearing on Tuesday (August 29).

Speaking at a House Standing Committee on Economics’ inquiry into dynamism, competition and business formation, Andeer said he is “really excited” about Apple Pay Later in the US, but not in Australia.

He went on to say that given the “challenging regulatory structure” that BNPLs currently face in Australia, Apple Pay Later will continue to focus on the US market for now.

As covered by VIXIO, Apple Pay Later launched in the US in March this year, and its first few months in operation have already been a huge success.

In Q2 this year, Apple Pay Later was the third most-used BNPL platform in the US, after PayPal and Afterpay respectively, according to a survey by market research firm J.D. Power.

Out of 8,000 BNPL users surveyed, 39 percent had used PayPal Pay in 4 during that period, followed by 33 percent for Afterpay and 19 percent for Apple Pay Later.

Moreover, J.D. Power noted that almost immediately after launch, Apple Pay Later had already been used by more customers than smaller BNPLs such as Zip and Sezzle.

It also noted that Apple Pay Later users tend to be more “financially healthy” than “most” users of other BNPL platforms.

When Apple Pay Later does launch in Australia, Brad Kelly, managing director of the Payment Services consultancy, said that alongside PayPal it is likely to “own the space”.

"Apple will only want (and will get) the best customers, leaving the riff-raff to Zip and Afterpay,” he said.

Grant Halverson, CEO of the McClean Roche consultancy, agreed, noting that banks and other bigtech companies are well positioned to “move in '' on the BNPL niche.

No rush to take Australia

When Apple Pay Later launched in the US, the company explained that any merchant who already accepts payments via Apple Pay does not need to do anything to implement Apple Pay Later.

If a merchant accepts Apple Pay, Apple Pay Later will now appear as an option for their customers during checkout online and in apps on the iPhone and iPad.

The ease of integration for merchants is due to the fact that Apple Pay Later is powered by Mastercard Installments.

“All Apple Pay Later is, is a Mastercard with pay in four capability,” said Kelly. “Merchants don’t have to do anything — it’s just a virtual Mastercard in the Apple Wallet with a high interchange fee.”

In the US, Goldman Sachs is the issuer of the Mastercard payment credential that is used to fund Apple Pay Later purchases.

However, due to its lack of retail business outside the US, Goldman Sachs will not serve the same role in Australia, and so a replacement will be needed.

Kelly said that finding a replacement would “not be difficult”. He also noted that Goldman Sachs is trying to downsize its relationship with Apple in other ways.

The Apple Card credit card, for example, which is a Mastercard issued by Goldman Sachs, could be handed over to American Express prior to the partnership’s expiration in 2026, according to reports.

Apple Pay Later is not yet available for in-person transactions, but nor is its closest peer competitor, PayPal Pay in 4.

As with Apple Pay Later, any merchant that already uses PayPal Checkout can easily implement PayPal Pay in 4 as a payment option.

Competition thinning out

PayPal Pay in 4 has been available in Australia since July 2021, and the service has spent much of that time competing with a crowded field of rivals, both homegrown and international.

But as of this year, many BNPLs have left the Australian market in quick succession.

Once a mecca for BNPLs globally, the number of BNPLs trading on the Australian Stock Exchange (ASX) has fallen from 12 at its peak to just two as of today.

The last two BNPLs standing on the ASX are Zip and Splitit, and both appear to be on life support.

This week, Zip announced a net loss of $413m for FY 2023 and, last week, Splitit saw its stock price fall 30 percent after proposing to go private and relocate to the Cayman Islands.

BNPL to be recognised as 'credit' product by year-end

Although the weakened market is likely to appeal to Apple, the bigtech appears to be holding back the launch of Apple Pay Later in Australia until new BNPL regulations come into effect.

“Apple is just biding its time,” said Kelly. “They will sit it out and wait for the world to end for other BNPLs, then decide when to enter.”

In May the Labor government of Anthony Albanese confirmed that it plans to regulate BNPL in a similar way to traditional credit products.

As Stephen Jones, minister for financial services, said of BNPL at the time: "It looks like credit, it acts like credit, it carries the risk of credit.”

Under the latest plans, the Albanese government said it aims to introduce legislation that would recognise BNPL as a credit product by the end of 2023.

After publishing three options for BNPL regulation in November last year — an industry code of conduct, “limited” regulation as credit and full regulation as credit — the government opted for the middle path.

Both PayPal and Zip submitted responses to the government’s options paper, and both said they favoured this approach, even though it means that they will be required to obtain an Australian Credit Licence (ACL).

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