Key points:
- Apple Pay Later enters the BNPL market
- Is this an affirmation of the market, or something unimportant?
- The grand lack has always been of people worth lending money to
Apple (NASDAQ: AAPL) has announced Apple Pay, which is an entrant into the already rather crowded buy now pay later (BNPL) field. In one sense the major competitors are Block (NYSE: SQ) after the takeover of Afterpay, Affirm (NASDAQ: AFRM), PayPal (NASDAQ: PYPL) and Klarna (as yet unlisted). In another sense the competition is the entire credit industry, from banks through credit card companies to paycheck cashing services. It depends upon how widely we want to draw our market boundary.
Analysis here requires looking both at the details of how such a service might affect Apple itself, and also the effect on that wider market. The truth probably being that BNPL isn't, in fact, all that much of a new business line at all. Which is why so many of the people in the market are struggling a bit.
The first stage is to look at this from Apple's point of view. This is a possibly interesting line of business but it's most unlikely to be material to Apple's results. Yes, of course, a revenue stream, but it's built on the back of the Mastercard network and Apple's simply too large already for a credit operation to make much difference to the corporate valuation. A few percentage points more off some subset of the Apple Pay flow would be significant for a smaller company but simply not for one of this size.
Also Read: Does Apple Pay Dividends?
The competition. Block, Affirm and so on, yes they might indeed be hurt by this. This is one of the industry behemoths stepping onto that turf they thought they owned. It's possible to think of the Apple entry into the market as being a validation of the business line but that's rather to miss what the business line actually is.
Buy now pay later – consumer credit – has been around for centuries. Block, PayPal and Affirm might be using online, electronic payments and all that to do the process but it's really not a new activity at all. The question is not whether there's a new and untapped market out there, it's how much of the extant one can they tap?
For there's really nothing very different between BNPL and credit cards, bank loans or store credit. OK, the technological infrastructure might be more efficient, prices to consumers might be lower. But it's still lending money to people to buy things. At which point someone, somewhere, has to take the credit risk that they don't pay.
And here's the thing about credit. There's no shortage of money to lend and really, never has been. There's also no shortage, and rarely has been, of people who want to borrow money. The shortage has always been of people that it's worth lending money to. BNPL tech and fiscal system plumbing doesn't change this basic calculation. It's always about credit risk.
Yes, sure, AI can aid and all that. But it's still true that there's no grand group of worthy borrowers unserved out there. The grand hopes of the BNPL providers that there is won't last – as recent stock prices and funding rounds (such as at Klarna) are showing.
BNPL might be a better way of providing consumer credit. But it's not a way of expanding the market for consumer credit itself. Apple's entry into the market doesn't change that at all.
