Key points to remember

• Apple held its WWDC keynote on Monday, announcing iOS 16, the new M2 chip, and several other new features and technologies
• They also announced a foray into the Buy Now Pay Later industry, with Apple Pay Later coming to iOS 16.
• With Klarna still a private company and Afterpay recently acquired by Block, Affirm was hit the hardest by the news with its share price plummeting after the announcement.

If you owned a business and had to choose which company you would be most worried about entering your market, Apple should be pretty high on this list. With 2021 revenue of $365 billion and over $200 billion in cash in the bank, Apple has significant scale and very deep pockets.

At its recent Worldwide Developers Conference (WWDC), Apple announced that it would be entering the fast-growing Buy Now Pay Later (BNPL) space, which has so far been dominated by upstarts like Affirm and Klarna. These companies are no longer small fries, with Affirm, for example, holding lucrative partnerships with retail giants like Walmart and Amazon.

Still, it’s Apple. The company that spent $6 billion – almost equivalent to Affirm’s entire market capitalization – on a handful of TV shows for the launch of its Apple TV+ service in 2019. BNPL companies could be forgiven for feeling a little nervous.

Apple’s WWDC announcements

WWDC is a highly anticipated event on the annual technology calendar. It’s Apple’s big show to the world about what they have planned for their products and services in the coming year. The main purpose of the showcase is to introduce third-party developers to give them time to work on new or updated apps and products that use Apple’s upcoming new features and technologies.

As you’d expect, announcements of new Macbooks, iPhones, and iOS features get just as much interest from the average Joe looking to upgrade. While we seem to be past the era of long queues for the new iPhone, there’s usually plenty of news to buzz about.

We’ll cover Apple’s new BNPL service, Apple Pay Later, in a minute, but there were also plenty of other announcements at this year’s WWDC. iOS 16 should receive some important updates. These include the ability to edit and unsend iMessages, a customizable lock screen that will allow better control of apps without unlocking, and the ability to use your iPhone as a webcam for your Mac.

Hardware-wise, Apple will release a sequel to its popular in-house chip, the M1. A newly designed Macbook Air will be the first Mac to receive the new M2 chip, with the Macbook Pro also receiving the hardware upgrade. There was no word on the delivery schedule for the latest devices, and it remains to be seen if it’s impacted by the global microchip shortage.

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Apple Pay Later, explained

Of course, Apple announced that iOS 16 will also come with its own BNPL service later, Apple Pay Later. The new feature will allow US users to pay for their purchases in four installments over six weeks. They will not charge any interest or fees to the user, and Apple Pay Later can be used for any transaction made using Apple Pay.

This is a blow for existing players in the market, such as Affirm. Apple Pay adoption is snowballing, with the number of customers and retailers increasing at an impressive rate. While full judgment should be reserved until the finished product is released, it would be reasonable to assume that the integration between Apple Pay and Apple Pay Later will be seamless.

The level of integration will provide an immediate competitive advantage to Apple over existing players in the market. Affirm and Klarna have invested huge resources in partnering with retailers and have had significant success. Even so, Apple has the potential to take this integration to another level.

This isn’t Apple’s first foray into the financial products market, either. For several years, they have allowed customers to pay in installments for items purchased from the Apple Store, such as Macbooks and iPhones. Since 2019, they have also offered their own credit card to US customers as part of a partnership with Goldman Sachs.

How does Buy Now Pay Later work?

With no fees or interest, how does Apple Pay Later hope to make money? Details have obviously not yet been released, but we can look to other companies in the industry for information.

Claim, for example, to generate income via several different methods. They charge interest for some of their lending products, but nearly half of their revenue comes from fees charged to merchants.

This means that if you buy something from Amazon using Affirm, Amazon will pay Affirm a fee to facilitate the transaction. The main reason they do this is because data shows that having BNPL available increases sales conversion rates and average order size.

Putting the ethics of this concept aside for a minute, consumers are likely to spend more and shop more often if they can delay payment. With a large network of merchants already accepting Apple Pay, it’s likely to be fairly simple for them to accept Apple Pay Later.

The controversy surrounding Buy Now Pay Later

The industry is not without its challenges and has been criticized by those who believe it encourages unsustainable spending practices and targets low-income people. This problem has been compounded by the fact that many BNPL providers do not report all of their loans to credit bureaus and often do not perform any credit checks on new borrowers.

This can make it easier for customers to get into debt while allowing them to continue to access additional credit. But given that Affirm doesn’t charge interest or late fees on many products, why is this a problem? Basically, it’s because they will eventually pass the debt on to someone else.

According to Affirm, they can cancel a loan if no payment is made for 120 days. This usually means the loan is purchased by a debt collection agency, and they certainly aren’t as lenient when it comes to interest and late fees.

This controversy is causing regulators to take a hard look at the industry. Late last year, the Consumer Financial Protection Bureau announced it would review companies such as Affirm, Paypal and Afterpay over concerns about rising consumer debt and the use of personal data. .

The industry itself obviously rejects these accusations. They argue that BNPL provides consumers with greater flexibility and choice in their spending and, therefore, makes it easier to manage household finances.

The impact on Affirm

While Klarna and Afterpay held the largest market share in the U.S. BNPL market at the end of 2021, Affirm is growing rapidly. Needing to take down two multibillion-dollar companies to earn the top spot in the industry, it’s no surprise that Apple took down Affirm’s stock price.

Affirm’s stock price reacted immediately, falling more than 7% on the morning of Apple’s announcement. The knee-jerk reaction is that Apple Pay Later will drop Affirm in the pecking order and reduce its revenue potential by consuming market share.

This might be bad news for Affirm in the short term, but like most aspects of investing, it’s not black or white. To see this from a different perspective, Apple entering the BNPL industry could actually help companies like Affirm and Klarna in the long run.

Indeed, Apple has the potential to make the BNPL pie much bigger overall. While Affirm could potentially lose a percentage of market share, if it’s a smaller percentage of a much larger market, it could still grow in real terms.

Morgan Stanely analysts suggested that Apple Pay customers would likely have higher incomes and more credit alternatives. This could help further legitimize the industry and increase the pool of customers comfortable with using BNPL.

Opportunities for investors

This announcement highlighted how quickly the tech industry is changing. BNPL is an entire industry that has sprung up out of thin air over the past decade, spawning several multi-billion dollar companies on its back.

In addition to new companies to invest in, it also creates opportunities for established players to grow, like Apple did with Apple Pay Later. While that means there are plenty of investment options to consider, it’s also hard to stay on track.

We at Q.ai have created the Emerging Tech Kit to take care of that for you. With this kit, you can stay ahead of the market for next-generation cutting-edge technology companies.

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