BNPL’s low profitability may not matter to Apple

At first glance, Apple’s announcement of the Pay Later program, which will start with select users before expanding over the coming months, seems to make little sense.

After all, the FinTech-led buy-now-pay-later (BNPL) space hasn’t exactly been total money printing. The popular consumer financing tool shot into the mainstream during the pandemic, when low interest rates allowed the FinTech sector maneuverability both in terms of raising money and how it offered the payment method.

BNPL FinTechs was struggling with profitability even before the Fed started raising interest rates. Now they are in almost free fall, as evidenced by the “FinTech Tracker®”, a PYMNTS and Sezzle collaboration.

BNPL vendors included in the PYMNTS FinTech US IPO Index demonstrate the sector’s difficulties. For example, MoneyLion’s stock returns have fallen 92% since its initial public offering (IPO), and in an example of BNPL’s profitability challenges, popular supplier Affirm is down 88%.

Across the sector, share prices and valuations have fallen as lending and venture capital funds dry up due to tightened lending and increased regulatory scrutiny following the collapse of Silicon Valley Bank. Complicating matters is the current oversaturation of the market, as there are nearly 200 suppliers, per PYMNTS’ data.

All these financial peculiarities of BNPL beg the question: Why would Apple enter the BNPL fray, especially now. So far, the tech giant’s forays into financial services have been limited to profitable, or at least safer, offerings. These measures include the offering of savings accounts and its digital wallet, Apple Pay.

Apple’s Pay Later will work a little differently than the other consumer-facing financial tools. Subject to eligibility and approval, the installment plan will be embedded in Apple Wallet. The payment method is limited to selected users before an extended rollout in the coming months, and users will be able to split purchases into four interest- and fee-free payments spread over six weeks.

Apple’s loans will range from $50 to $1,000 and can be used for online or in-app purchases through an iPhone or iPad, with the ability to track, manage and pay back in Apple Wallet. Loans will be reported to credit bureaus and become part of the user’s financial profiles.

With no official word from Apple, answers to “why now” are still up in the air. One possibility is that the company may not face the same financial challenges that BNPL FinTechs is facing. With Apple’s dedicated and loyal customer base and many merchants already accepting the wallet, the tech giant doesn’t need to spend money on customer acquisition or additional merchant integration.

Given this significant difference from pure gaming competitors, Apple may have better unit economics. After all, it just needs to ensure that more people repay those loans than don’t, which could be a clue as to why the company is keeping its Pay Later invitation for now.

Additionally, if Apple’s overall strategy is to keep its users in-house through a series of offers, the goodwill and brand affinity generated by Pay Later could prove more lucrative than strict dollars and cents.