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Global behemoth Apple has its eyes set on exploring a new frontier – Buy Now, Pay Later (BNPL) – with its new product Apple pays afterwards.
Since the company is already able to lure the masses to its products and has tremendous brand power, banks, lenders and other established BNPL players may feel intimidated. To take To confirma US-based BNPL provider: Shares of the company fell 17% following the news.
However, Apple Pay Later isn’t the company’s first step into the financial world. In 2019, the company partnered with Goldman Sachs to create Apple Card, which offered loans for device purchases. So it’s no surprise that Apple jumps on the bandwagon to offer BNPL.
This time, however, Apple took a different approach: Instead of relying entirely on loan services or banking partners, it created Apple Financing LLC. Apple Pay and Wallet users can request Apple Pay Later during checkout and require a debit card to make payments. Once approved, they can start using Apple Pay Later at any merchant that accepts Apple Pay.
Business and technical decision makers might consider this as another split payment method. But delving deeper into the launch of Apple Pay Later can provide valuable insights into the BNPL industry.
Even in turbulent times, the BNPL industry continues to grow
While BNPL solutions have captured the attention of millions of customers, particularly in the US, Europe and Australia, some providers have been going through tough times. Rising inflation, slowing economic growth and rising borrowing costs have put BNPL companies in a difficult position. For example, Swedish BNPL company Klarna laid off 10% of its global workforce.
However, Apple is making a big move in turbulent times simply because BNPL is still in high demand. According to a survey of 60% of shoppers, inflation says it’s what drives them Credit Karma.
The US consumer watchdog is looking into the matter
BNPL is a rich source of consumer data: by excluding the third-party providers, Apple can maintain full control over its customers and better understand their behavior. With the valuable insights Apple Pay Later provides, the company can predict future consumption patterns and develop better marketing strategies. But you know what they say: “With great power comes great responsibility.”
As Consumer Financial Protection Bureau (CFPB) director Rohit Chopra said, “Any tech giant that has a lot of control over a mobile operating system will have unique advantages in exploiting data and e-commerce more broadly.”
This clearly indicates that the largest US consumer watchdog is keeping a close eye on Apple. The CFPB has even raised data privacy and antitrust concerns for Apple Pay Later. More than ever, the company will have to operate tightly when it comes to protecting consumer data.
In addition, late last year, the CFPB opened an investigation into five BNPL providers – Affirm, Afterpay, Klarna, PayPal and Zip – with the aim of protecting consumers from building up debt. They recently released a BNPL report based on this research.
As the U.S. Consumer Organization plans to regulate BNPL, companies that offer various BNPL options to consumers must be on top of regulatory scrutiny and ensure they follow transparent, fair, and responsible lending practices. This will also lead to customer retention.
That’s why Apple made it clear in its press release that the company designed Apple Pay Later with users’ financial health in mind. Customers can also easily view, track and refund payments within Wallet.
Apple’s entry into BNPL will attract more financial institutions and merchants
There have been numerous discussions about whether Apple Pay Later poses a threat to major BNPL providers. The truth is that this payment solution won’t shake up the industry as the other providers might fear. This is because it is limited to Apple Pay users.
Make no mistake, the arrival of Apple Pay Later is a major development and could set off a chain reaction in the industry as it is proof that BNPL has taken root in the market. Therefore, we can anticipate more banks, lenders and merchants entering the space in a quest to differentiate themselves from the competition.
When larger financial institutions move into the BNPL space, traders will also benefit. As an illustration: direct-to-consumer BNPL transaction costs can be as high as 3 to 6% of the purchase value (this is how installment payment providers earn money). Banks can offer merchants more competitive transaction fees of as little as 1 to 3%.
The bottom line is that exploring why and how big technology entered the BNPL space could yield important lessons for the industry. And companies working in industries like e-commerce can use these takeaways to navigate the BNPL and start their own journey.
Yaacov Martin is CEO and co-founder of Jifiti.
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