Apple Inc. plans to enter the buy-now pay-later game with a new installment-pay offering, but it remains to be seen how much of an impact the tech giant’s move will have on the growing economy for split payments.
Shares of buy-now pay-later operator Affirm Holdings Inc. AFRM, +2.66% dropped 5.5% in Monday trading after Apple AAPL, +1.76% announced its new payments feature at its WWDC keynote, and the stock was off another 1.5% in Tuesday morning trading.
Still, Bernstein analyst Harshita Rawat didn’t see extreme cause for concern among incumbent players. Apple’s foray into BNPL represents “an obvious but likely only a modest risk” to established BNPL companies such as Affirm, privately held Klarna, and Block Inc.’s SQ, +1.46% Afterpay, in her view.
She noted that while Apple has waded into payments through other endeavors, including the Apple Pay mobile wallet and a credit card offered in partnership with Goldman Sachs Group Inc. GS, +0.31%, the company “has had limited success.” She sees the current Apple Pay business likely holding just a single-digit share of online commerce eight years after its launch and estimates that the Apple Card made up less than 1% of U.S. credit-card volumes last year.
As for the company’s move into BNPL with a new Apple Pay feature that will let consumers split purchases into four interest-free chunks, Rawat said that “the devil [is] in the details of execution,” and she deemed the BNPL market large enough to support multiple players.
Additionally, she seemed to comment on Apple’s positioning with its BNPL offering, noting that other services have apps that let people discover new deals, something Apple won’t have.
Further, the company is starting off with an interest-free option that allows people to break purchases into four parts. “[B]roader adoption (and utility) will require longer duration installment plans (which have their own challenges with respect to underwriting, balance sheet, etc.),” she wrote in her note to clients.
An Affirm spokesperson told MarketWatch that his company sees its own positioning as strong given a range of term lengths for Affirm installment offerings and the company’s history in underwriting. “We simply don’t think anyone can do what our team and our technology can do,” he said.
Apple’s move into the BNPL market comes amid growing popularity for installment-pay offerings, with researchers at GlobalData estimating that the global transaction value of payments made with BNPL services hit $120 billion last year. Still, there are questions about how the payment trend will fare moving forward given macroeconomic uncertainty and increased regulatory focus.
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