Apple’s latest fintech move is buy now, pay later, industry on edge

Apple’s latest fintech move is buy now, pay later, industry on edge

Apple’s latest fintech move is buy now, pay later, industry on edge

Apple Pay Later allows users to pay for things in four equal installments.

Jakub Porzycki | Nurfoto | Getty Images

AMSTERDAM — Apple’s move into the crowded “buy now, pay later” space has raised the stakes for the fintech companies that pioneered the trend.

The iPhone maker Monday announced plans to launch its own “pay later” loans, expanding a range of financial services products, including mobile payments and credit cards. Called Apple Pay Later, users can pay for things in four equal installments, paid monthly with no interest.

This places BNPL players such as PayPal, Affirm and Klarna in a difficult position. The fear is that Apple, a $2 trillion company and the world’s second largest smartphone maker, could be pulling customers away from such services. Shares of Affirm have fallen 17% so far this week on the news.

The BNPL market was already showing signs of trouble. Last month, Klarna laid off 10% of its global workforce, blamed for the war in Ukraine and fears of a recession.

A triple blow from rising inflation, higher interest rates and slowing economic growth have cast doubt on the industry’s future. Rising borrowing costs have already made debt more expensive for some BNPL companies.

“It’s going to be in trouble because credit always has to be phased out and repaid,” Charles McManus, CEO of UK fintech firm ClearBank, told CNBC at the Money 20/20 Europe fintech conference in Amsterdam.

“When interest rates start to rise and inflation starts to rise, all the chickens will come home to sleep.”

McManus said the industry is pushing people into debt they can’t pay and therefore needs to be regulated. The UK is trying to push through BNPL regulations, while US regulators have opened an investigation into the sector.

“Do I pay my gas bill or do I pay off the armchair I bought three years ago on an interest-free credit that is on the way?” McManus warned that “excesses always come back.”

Apple said it will handle lending and credit checks for Apple Pay Later through an in-house subsidiary, leaving Goldman Sachs — who has previously worked with the company on its credit card — out of the equation. The move is an important step that will give Apple a much bigger role in the financial services industry than it currently plays.

Klarna CEO Sebastian Siemiatkowski said the launch of Apple Pay Later marked a “big win for consumers worldwide”.

“Plagiarism is also the highest form of flattery,” he tweeted earlier this week.

Ken Serdons, chief commercial officer of Dutch payments company Mollie, said Apple’s BNPL feature “raises the bar” for fintechs operating in the market. Mollie offers installment loans through a partnership with fellow fintech company in3.

“The BNPL space is getting fuller and there are still many new players entering the market,” he said.

“It will be difficult for players with a substandard proposition to compete effectively with the best players out there.”

However, James Allum, senior vice president of Europe at payment company Payoneer, said there is plenty of room in the market for different companies to compete.

“Businesses should be looking at opportunities for collaboration rather than competition and threats,” he said.