Should BNPL players Affirm and Klarna worry about Apple Pay Later?

Apps like Affirm and Klarna offer interest-free BNPL options (although Klarna will charge late fees), and loans with varying annual percentage rate (APR). Affirm, founded by PayPal co-founder Max Levchin, lets users take out multiple loans, with the maximum value of one loan capped at $17,500. Klarna, which shows users their estimated purchasing power, has no predetermined limit and makes decisions on a case-by-case basis.


Apple’s biggest advantage in this space is locking users in its ecosystem, integrating the new service as part of an existing, popular feature. While Apple Pay Later in itself may not win the Cupertino company new customers, the convenience of using Apple Pay might convince existing BNPL users to switch services, decreasing sign ups or volume of transactions for other apps. At the same time, Apple Pay Later could introduce new customers to the BNPL environment, potentially expanding the user base for the industry overall.

The jolt to Affirm’s stock on the news of Apple Pay Later’s launch indicates that the news was perceived as a threat more than a boon to BNPL players. However, Mizuho analysts argue that there shouldn’t be much cause for concern for Affirm, given its “more modest customer overlap with Apple Pay (20% vs. 20-30% for others) and a higher AOV (several hundred dollars AOV ex. Peloton vs. <$100 for Apple Pay.” Levchin has also shrugged off concerns. He said Apple’s service “creates a really nice tailwind for us” by letting more people know about BNPL.


How will Apple make money from Pay Later?

The 0% financing scheme seems to be a great deal for users—but how will the company make money? The answer is merchant fees, which retailers pay Apple in exchange for adding Apple Pay as a payment option.


Plus, “Apple will also gain valuable insight into consumers’ purchase behaviors, which will allow the company to predict future consumption and spending behavior,” according to Rajat Roy, associate professor at Bond University’s business school.

Image for article titled Apple Pay Later can give Affirm and Klarna a run for their money
Graphic: Apple (Other)

How does Apple Pay Later work?

A user can apply for a loan within the Apple Wallet, where they’ll share the loan amount they’re requesting and agree to the Apple Pay Later terms. The firm will then perform a soft credit pull—review the user’s credit report and credit score to assess financial limits—before approving them.


Once set up, users can apply for a loan directly in the checkout flow when making a purchase. Any transaction needs confirmation through Face ID, Touch ID, or passcode.

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