The already struggling ASX buy now pay later sector took a further hit Tuesday after Apple announced a major expansion of Apple Pay to Apple Pay Later, a form of buy now pay later.
For now, the product will only be available in the huge US market but will be offered elsewhere in coming months after regulatory approvals.
But the looming threat from the new product could very well see local BNPL hurry into mergers for protection.
With Afterpay tucked into a weakening Block (nee Square), the selloff has spread to other players such as Zip, which hit a new four-year low on Monday and Tuesday
Zip was off nearly 15% to 66 cents on Tuesday and has now shed more than 88% of its value this year.
Block shares fell more than 3% on Monday on Wall Street on news of the new Apple product and are down 34% year to date.
It paid $US32 billion in shares for Afterpay which is worth a fraction of that figure judging by the slide in the share prices of rivals.
Part of the problem for Block is the surge in bad debts in Afterpay which rose to more than $US170 million in the six months to last December.
In Europe, Klarna, one of the major players last week sacked 10% of the staff or around 700 people, cutting other costs and having to wear hundreds of millions of dollars in bad debts. It is still a private company and the Commonwealth Bank has a 5% shareholding which it is now underplaying with its own BNPL product in the local market.
Monday saw shares in Affirm shares slide more than 5% on Wall Street on the news of the new Apple payment system, joining Block deep in the red. Affirm shares have lost 75% so far in 2022.
Shares in Sezzle, another ASX-listed BNPL player, also lost 3% on Monday and a further 5% on Tuesday to take their YTD fall to more than 86%.
Apple says Apple Pay Later will allow users to split the cost of an Apple Pay purchase into four equal payments without interest or late fees. That will upset existing rivals because late fees were a way BNPL companies tried to use as a revenue source, along with high merchant fees.
The new financial product – which was rumoured ahead of its debut at Apple’s 2022 Worldwide Developers Conference (WWDC) on Monday (where new operating systems for the iPhone, Mac and new chips were revealed) – will operate through the Mastercard system (a win for them over Visa) and be available everywhere Apple Pay is available in the US, both in apps and on websites.
It will require requires no extra work from developers or merchants. Upcoming payments can be made, tracked and managed through the Apple Wallet app on iOS.
Accompanying the launch of Apple Pay Later is Apple Pay Order Tracking, which enables merchants to deliver receipt and order tracking to Wallet. It’s integrated with Shopify, according to Apple, and — like Apply Pay Later — will need no further additional integration.
Apple’s BNPL move follows its purchase of the UK-based credit checking start-up Credit Kudos earlier this year.
Growth in this segment of the finance sector is slowing as Covid lockdowns ease and consumers return to shops and away from their phones and laptops they used extensively to shop online in the pandemic in 2020 and 2021.
Regulators in Europe, the US and Australia are closely monitoring the BNPL services area to make sure consumers, especially younger ones, do not take on too much short-term credit at a time of soaring inflation and rising rates. There are also concerns over how well consumers understand the debt they are taking on.
Apple Pay Later will go head-to-head with BNPL services from PayPal, Affirm, Klarna, Sezzle and countless others. Amazon began offering a BNPL option via a partnership with Affirm announced last August, and just last week, Affirm announced a deal with Stripe to offer its technology to US businesses that use Stripe’s payments technology (which is a rival system to that offered by Block).
Apple says its BNPL system is “designed with users’ financial health in mind”, including a dashboard to monitor payments within its Wallet app. It warned that a customer’s card-issuing bank “may charge a fee” if their debit card account contained insufficient funds for repayments.
Apple’s technological ubiquity in the US will make it hard for rivals to match the Apple offer. Over 60% of American homes have at least two Apple products, and close to 50% of Americans reportedly have an iPhone. An estimated 35% of iPhone users in the US have an Apple Watch and around half of iPhone owners are women (that’s similar elsewhere in the world).
Young women are the big users of BNPL – in Australia women use BNPL at a rate twice as much as men.
Apple shares edged up half a per cent on Monday in a market that barely finished higher in a day of big swings.
That Apple shares rose modestly on the day and those of BNPL firms fell tells us who the market believes will win the BNPL battle now that a giant like Apple is in the arena.
