It was almost a year ago when we first wrote about Apple Pay Later. At the time we predicted that it might be a disruptive force in the highly competitive buy now, pay later space.
The BNPL industry took a brief hit last year when word got out that Apple was partnering with Goldman Sachs to offer a buy now, pay later feature as part of Apple Pay. Here is what we reported last year.
The news on Wednesday had an immediate and negative impact on global stocks tied to BNPL, including PayPal, Affirm, Afterpay, and others. Each of these stocks dipped on the news Tuesday. Afterpay, for example, was trading at 87.79 as of 2 pm ET on Tuesday. At this writing, it was hovering at 76.96. That’s about a 12% dip. Similarly, Affirm dropped 21% over the same span.
A lot has happened since we wrote this. For starters, Afterpay is now folded into Block (Square’s parent company). And it has been integrated into Block’s popular CashApp.
Equity values for BNPL players have also tanked since last year. On July 14 of last year, after Apple Pay Later was revealed in the media, Affirm closed at 56.76. Yesterday, the stock closed at 21.18, that’s about a 63% fall in less than a year.
These declines had little if anything to do with Apple. At least this time. Tech stocks in general have been hammered recently. Fintech stocks in particular. And within fintech, BNPL has taken its full share of the beating. Increasing concerns about rising BNPL default rates and looming regulation are among the unique headwinds BNPL faces.
And privately held BNPL Klarna has announced plans to cut its staff by 10% and is now raising new capital at a reduced valuation.
Game Changer
This week, Apple published a preview of new features that will be included in the upcoming iOS16. Among them is the addition of Apple Pay Later to the Apple Wallet. This means that anyone using Apple Pay to buy anything can immediately apply for Apple Pay Later. And that Apple Pay Later will be accepted wherever Apple Pay is accepted.
Apple Pay Later operated like most BNPLs, giving consumers the option to split up a purchase into four payments over six weeks, with zero interest or fees. We presume this assumes all payments are made on schedule.
A quick reminder of Apple Pay’s scale will make it clear what a game-changer this is. Apple Pay has 507 million global active users. It added 66 million users in 2020 alone. And it has a 44% share of the U.S. mobile payments market.
Since Apple released its iOS16 preview this week, Affirm’s shares dropped 11%, from 23.72 at the beginning of the week to 21.18 yesterday.
For its part, Block, which acquired U.S.-Australian BNPL Afterpay last year, sees Afterpay’s integration into CashApp in similar terms. In its Q1 earnings release, the company touted the fact that CashApp funneled 350,000 leads to Afterpay in Q1.
Yet with 48,000 active users projected for year-end 2022, CashApp has less than 10% of ApplePay’s reach.
What? Me Worried?
The companies that would appear to be most threatened by this upcoming iOS16 integration are Affirm and Block. And given Affirm is a pure-play BNPL, most of the attention is pointed in its direction.
Affirm’s CEO Max Levchin told Bloomberg this week that he doesn’t see Apple Pay Later as a significant threat.
“I don’t think there’s much concern,” Levchin told Bloomberg Television this week. “There’s a lot of room for growth for all involved.”
That quote may have a whistling past the graveyard vibe to it. But he did offer some points in his defense.
Levchin noted, for example, that Apple is offering one option — pay in four over six weeks. Affirm, on the other hand, offers a variety of payment plans. So, apples and oranges, as it were?
He also noted that there is still a massive upside for BNPL, given that it accounts for less than 5% of all transactions.
Fair points. But Affirm noted in its last quarterly report (its Q3 22) that it had 12.7 million active consumers. And that figure was 137% bigger than a year earlier.
Despite economic and reputational headwinds, BNPL will continue to grow. And there will be room for multiple players. But there is no question that Apple has a huge advantage via its 507 million active users. We’ll have to wait and see what happens when iOS16 rolls out.
