With Apple Pay Later, Apple Is Getting Into the “Buy Now Pay Later” Business.
Apple continues its diversification strategy.
The fractional payment sector continues to be the subject of a fierce battle. And after having pushed the banks, it is now the turn of the Fintechs to see their market being nibbled away by the big groups. The American giant Apple announced on June 6, 2022, during the keynote of the WWDC 2022 the launch of its own solution, Apple Pay Later, to attack the specialists like Klarna and Affirm, while the latter are experiencing their first setbacks.
No interest rate, no late fees
Apple's solution, which will first be available in the United States sometime in 2022, will allow its users to pay in four installments for all purchases made through Apple Pay, whether online or in physical stores, spread over a maximum of six weeks.
To gain a foothold in this hot sector, the smartphone maker will not charge interest rates or late fees. The service will depend on the MasterCard network. Apple did not specify which bank would be responsible for the credits, but it is already working with Goldman Sachs for its Apple Pay payment service.
The new offering is part of Apple's strategy to diversify its services to entice users of its devices to stay in its ecosystem, from communication to entertainment to health to shopping. Apple is thus capitalizing on the success of fractional payments, which are credits of small amounts and short durations that have so far escaped consumer credit regulations and are attracting more and more consumers, especially young people. A few weeks ago, the Apple company announced the acquisition of Credit Kudos, a British start-up specializing in credit analysis.
The Swedish company Klarna and the American company Affirm, which popularized this type of payment, had seen their value soar during the COVID-19 pandemic, which pushed many consumers into the arms of e-commerce, where their solutions had first become established. Since then, many merchants, both physical and online, have sought to equip themselves with these payment offerings to meet the demand.
Apple is following its usual strategy of launching after the forerunners have had their day in court
But the machine has started to seize up this year. The main causes are the rise in interest rates, which may increase the cost of credit, inflation, which may reduce the ability of households to repay their loans, and the slowdown in the e-commerce market.
At the end of May 2022, Klarna announced the loss of 700 jobs while it is struggling to raise new funds. Indeed, investors are starting to worry about the solidity of the business model of the fractional payment specialists to the point that Klarna's valuation could drop by 30 to 50% for its next round of financing, compared to the $45 billion recorded last year.
For its part, Affirm's stock has already fallen nearly 75% since the beginning of the year and lost another 5% following Apple's announcement on June 6, 2022.
The struggles of these startups may well allow Apple to make its way in this market. True to its successful strategy in many other areas, Apple always waits for the forerunners to wipe the slate clean before learning from them and launching. With Apple Pay Later, the Tim Cook-led firm is doing just that.
However, the American giant is likely to face another hurdle in the industry: the increased vigilance of regulators around the world in the face of the risk of customer overindebtedness. The United States, the United Kingdom, and the European Union want to tighten the screws on fractional payments. So we'll have to wait and see if this doesn't upset Apple's plans in the area of fractional payments.
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