Will Apple Pay Later Legitimise BNPL?

April 11, 2023
Buy now, pay later (BNPL) momentum has notably slowed in 2023 as many providers struggle to deal with the rising cost of borrowing, but insiders believe that Apple’s foray into the market is a step forward for the industry which could further cement it as a mainstream payment option.

Buy now, pay later (BNPL) momentum has notably slowed in 2023 as many providers struggle to deal with the rising cost of borrowing, but insiders believe that Apple’s foray into the market is a step forward for the industry which could further cement it as a mainstream payment option.

Over recent years, and particularly since the onset of the COVID-19 pandemic, BNPL has risen to become a significant alternative payment method in many parts of the world, with particular success in markets such as the UK, Germany, Australia and Singapore.

While economic conditions have tempered market expansion, which has seen layoffs at leading BNPL providers such as Klarna and Zilch, as well as the collapse of Openpay in Australia, Apple has nonetheless committed to entering the space.

Launched in the US last month, Apple Pay Later allows users to split their purchases into four interest-free repayments spread over six weeks, with no additional fees.

Šimon Kočí, international partnerships director at payments data firm Dateio, told VIXIO that he believes the launch of Apple Pay Later is a “significant step forward” for the BNPL sector.

According to Kočí, a trusted and established brand such as Apple is likely to increase acceptance and adoption of BNPL among consumers, potentially leading to a surge in demand for these services.

Dara Busch, co-CEO of US-based public relations agency 5WPR, said there is currently “incredible interest” in consumer use of BNPL that Apple can capitalise on.

“It’s the ideal time for Apple to launch their BNPL platform, with prices high and consumers looking to save and spread their money where they can,” she said.

Apple Pay Later will offer loans of between $50 to $1,000, which can be used for in-store, online and in-app purchases with any merchant that accepts Apple Pay.

Users will also be able to use the newly-upgraded Apple Wallet to track, manage and repay their Apple Pay Later loans.

“Apple Pay Later's integration with Apple's existing ecosystem, including its digital wallet and payment platform, also makes it an attractive option for consumers who are already invested in the Apple ecosystem,” said Kočí.

This can potentially reduce friction in the checkout process and make it easier for consumers to adopt BNPL, he said, pointing out that there is no need for direct integration as with competitor solutions.

Increased competition

Dillon Harindiran, co-founder of Slipstream, an API provider that enables data sharing with credit reporting companies, said the pivot towards BNPL is a “very intelligent move” from Apple.

Moreover, it builds on Apple’s acquisition of UK open banking start-up Credit Kudos in March 2022 — a deal reportedly valued at around $150m.

“The acquisition of Credit Kudos has added to Apple’s capability to manage credit risk,” said Harindaran.

Following this, Harindaran said that Apple’s launch of its own BNPL service was the “next logical step” for the bigtech company.

“Whether they now become a serious, dangerous competitor to the likes of Zilch and Klarna remains to be seen,” he said. “I am not sure if it will be an either/or situation, or whether consumers will use different BNPL providers for different contexts."

Although Apple's entry into the BNPL market is likely to have a significant impact, Kočí suggested that it does not necessarily mean that all other firms in this space are doomed.

“Smaller firms like Klarna, which have already built a strong brand and loyal customer base, can still compete effectively by offering differentiated products and services,” he said.

“There is still room for healthy competition in the market, which will fuel innovation and ultimately benefit consumers.”

Busch added that there is still room for growth in the BNPL market, both in terms of revenue and attracting new users.

According to 5WPR’s 2023 Consumer Culture Report, 80 percent of consumers who said they use BNPL options are between 25 to 34 years old.

“That means there are still tons of shoppers, young and old, not using BNPL options at this moment,” said Busch.

“Apple Pay already has a large client user base and is in the position to attract more first-time BNPL users due to the trust and familiarity they already have with the Apple brand.”

Here to stay

Stuart Miles, founder of financial wellbeing platform Squirrel, said that BNPL is “here to stay” and has been “further legitimised” by Apple.

“Small artisan shops have always offered layaway options [where a customer can pay a deposit to secure an item] and Apple are doing this on a larger scale,” he said.

Going forward, Miles expects that Apple will take significant market share in the BNPL sector.

“It has a enough runway whereby it can weather the next couple of years. It will be interesting to see whether other major retailers take that approach,” he said. “Does this mean that Samsung or other companies get involved? Apple usually comes in later than everyone else, adds its own spin to the solution, and then you find several copycat partners who know Apple being there means that it is legitimised.

“We may now see Amazon, Google and others offering similar services."

Seeking to ringfence their respective market shares in the BNPL sector, both Zilch and Klarna, for example, have readied and deployed significant war chests in recent years.

In 2021, London-based Zilch acquired US debt funding platform Neptune Financial — a move designed to help its launch in the United States.

Meanwhile, Klarna has undertaken a steady stream of acquisitions since it began operations in 2005 to build out its capabilities.

Some of its most significant recent acquisitions include PriceRunner, a shopping comparison platform based in the Nordics, which it acquired in August last year, and Inspirock, an online trip planner it acquired in 2021.

At the same time, however, Klarna has also experienced significant losses. Last month, for example, Klarna’s UK wing announced that it was reintroducing late payment fees, as global losses hit $1bn. This record net loss far exceeded its 2021 net loss of $680m.

See also regulatory developments going on around BNPL across the globe in our latest regulatory analysis here: UK BNPL Consultation and Beyond: Regulatory Impacts on Firms.

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