Since the beginning of the pandemic, interest in buy now, pay later (BNPL) services has grown rapidly. From retail giants such as Amazon and Walmart to banks like Citizens Bank and Citi, we have seen multiple players enter the BNPL space. And now it’s Apple’s turn to steal the limelight.
The global behemoth will go live with Apple Pay Later alongside the release of iOS 16 in September 2022. This service will allow U.S.-based Apple Pay users to pay for products in four equal installments, paid over six weeks without interest.
“Built into Apple Wallet and designed with users’ financial health in mind, Apple Pay Later makes it easy to view, track and repay Apple Pay Later payments within Wallet,” the company commented in a press release.
But could this all come crashing down? In May, Swedish BNPL provider Klarna laid off 10% of its global workforce, attributing the cuts to the war in Ukraine and fears of a recession. Due to climbing borrowing costs, debt has become more expensive for some BNPL companies. On top of that, rising inflation, slowing economic growth and higher interest rates have put the future of many industry players in doubt.
So, if the top BNPL fintechs are facing trouble at the moment, why is Apple making a dramatic entrance into the market? Because these issues are not a reflection of the demand for BNPL — the arrival of Apple Pay Later solidifies that demand and has the potential to shake up the BNPL landscape. After all, the tech giant is forward-thinking and sets new standards every time it makes a move. Let’s dive deeper into why Apple is hopping on the BNPL bandwagon now.
BNPL is More Than a Payment Method
The conception of Apple Pay Later was actually announced a year ago, which means that it was a strategic move. It is clear that Apple knows that BNPL is more than a payment method — it is also a valuable tool to build brand equity and deepen customer relationships and stickiness. Moreover, it is an effective marketing tool to increase sales by up to 40% and average order value (AOV) by up to 70%.
And what’s more, having its own installment payment service will allow Apple to understand its customers better: BNPL is a rich source of customer data and insight into consumer behavior. Consequently, Apple will gain a deep understanding of consumers’ purchase habits, which will enable the company to predict future consumption and spending behavior.
Needless to say, Apple needs to run a tight ship when it comes to consumer data protection — and more so now than ever with the U.S. Consumer Financial Protection Bureau (CFPB) investigating the potential for data misuse with Apple Pay Later. Apple is a brand that consumers trust, so it’s important that the company maintains that same level of trust across their financial products as well.
Despite Bumps in the Road, BNPL is Here to Stay
Apple entering the market is actually good news — it poses an opportunity, not a threat, for banks, lenders and merchants. The move proves that BNPL is here to stay and tells everybody involved in the BNPL ecosystem, such as banks, lenders and merchants, that they need to take this modern payment method seriously and act now (or risk being left behind).
As mentioned before, inflation is a problem for some BNPL providers, and Apple Pay Later might have to deal with macroeconomic changes as well, but the demand for BNPL is higher than ever. In fact, nearly 60% of customers said inflation is driving them to use BNPL products, according to a new survey from Credit Karma. Additionally, 50% of survey respondents said their BNPL usage has increased in the past six months.
The fact that Apple already has a huge market share and brand power, with the capability to attract millions to its products and services, might intimidate merchants and other players in the BNPL space. However, Apple Pay Later will not snap up as much of the market as other players may fear — Apple Pay Later is limited to Apple Pay users, which represents only 10% of all U.S. adults.
Apple will reap the rewards of its new payment method because the solution is its own (and not via a middleman). This will allow the company to strengthen customer relationships and gain critical consumer data insights. Clearly Apple believes that this information and relationship-building is very valuable, as it’s going to possibly require certain regulatory adjustments in the future.
Given all this, shouldn’t retail brands consider offering their own BNPL solution, so that they don’t have to “give away” this data to BNPL fintechs or to Apple?
Yaacov Martin is the CEO and Co-founder of Jifiti, a global fintech company. He is a thought leader, panelist and active contributor to leading payments and fintech publications. He has been bylined on TechCrunch, Payments Journal, The Fintech Times and The Paypers, among others.