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

AMSTERDAM – Apple’s move into the crowded ‘buy now, pay later’ area has increased efforts for fintech companies that were pioneers of the trend.

The iPhone maker announced plans to launch its own “pay later” loan on Monday, expanding a range of financial services that already include mobile payments and credit cards. The service, called Apple Pay Later, will allow users to pay for items over four equal installments, paid monthly without interest.

That puts BNPL players like 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 pull customers away from such services. Shares in Affirm have fallen 17% so far this week on the news.

The BNPL market had already shown signs of problems. Last month, Klarna laid off 10% of its global workforce, blaming the war in Ukraine and fears of a recession.

A triple blow of rising inflation, higher interest rates and declining economic growth has put the industry’s future in doubt. Rising borrowing costs have already made debt more expensive for some BNPL firms.

“It’s going to end up in trouble because credit always has to relax and get paid back,” Charles McManus, CEO of the British fintech company 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 rave.”

McManus said the sector is pushing people into debt they cannot afford to repay and should therefore be regulated. The UK is trying to push through BNPL regulation, 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 interest-free credit that falls due?” said McManus, warning that “excesses always come back.”

Apple said it will handle lending and credit checks for Apple Pay Later through an internal subsidiary, and takes Goldman Sachs – which has previously worked with the company on its credit card – out of the equation. The move is a significant step that will give Apple a much bigger role in financial services than it plays today.

In a speech on CNBC on Friday, Klarna CEO Sebastian Siemiatkowski said the launch of Apple Pay Later was an “incredible” thing for consumers and defended the company’s business model.

“This is a better model for consumers than the traditional one with credit cards,” he said. Klarna is a more flexible lender compared to banks and “in fact extremely recession-proof,” Siemiatkowski added.

Ken Serdons, commercial manager for Dutch payment startup Mollie, said that Apple’s BNPL function “raises the bar” for fintechs operating in the market. Mollie offers installment loans through partnerships with third-party companies.

“The BNPL space is getting crowded with many new players still entering the market,” he said.

“It will be difficult for players with a sub-goal to compete effectively against the best players out there.”

However, James Allum, senior vice president of Europe at Payoneer, said there was enough room in the market for different companies to compete.

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