apple pay later

Affirm stock (NYSE: AFRM) crashed yesterday after Apple formally announced its long-rumored pay later service under the name Apple Pay Later.

Apple’s entry would intensify the competition in the BNPL (buy-now-pay-later) industry where players like Affirm are anyways making losses.

In its release, Apple said that Apple Pay users would be able to split payments into four interest-free installments without paying any additional fee.

Apple said, “Users can apply for Apple Pay Later loans of $50 to $1,000, which can be used for online and in-app purchases made on iPhone and iPad with merchants that accept Apple Pay.”

The iPhone maker said that users would be able to apply for loans within the wallet without any impact on their credit scores.

Notably, while some might see BNPL not reporting data to credit rating agencies as a positive for credit scores, the regulators are worried that it might lead to the incorrect portrayal of the borrower’s data-as for all practical purposes these are loans.

Meanwhile, Apple said that it would start reporting these loans to credit bureaus this fall to help “promote responsible lending for both the lender and the borrower.”

How to Apply for Apple Pay Later?

The interested borrowers would first need to apply for the loan on their wallet followed by the amount. Apple would then do a “soft credit pull” to gauge the creditworthiness.

It added, “Users can apply for Apple Pay Later loans of $50 to $1,000, which can be used for online and in-app purchases made on iPhone and iPad with merchants that accept Apple Pay.”

Incidentally, for repayments, customer can only add their debit card as a payment method and not a credit card.

The company has invited select users for early access to a pre-release version.

Meanwhile, the BNPL space is set to see more action after Apple’s entry. There was a lot of action in the industry in 2021 as Affirm listed in the year. Also, Block announced the acquisition of Australian BNPL company Afterpay.

The same year, Amazon partnered with Affirm to bring the company’s BNPL solutions to buyers on its e-commerce platform.

BNPL Industry Witnessed a Turmoil in 2022

BNPL Industry witnessed turmoil in 2022 amid rising interest rates and an increase in bad loans. Affirm stock fell to its all-time lows and even now it trades at less than 10% of its all-time highs.

While releasing its earnings for the fiscal second quarter of 2023 last month, Affirm said that it would lay off 19% of its workforce.

There has been a flurry of layoffs in the US tech industry and in the first three months of the year over 150,000 tech workers have lost their jobs.

In contrast, the US economy added over 800,000 jobs between January and February.

Affirm also shut its crypto business as the company blamed Fed’s rate hikes and macroeconomic slowdown for its woes.

Many observers are meanwhile constructive on crypto’s long-term outlook despite the current challenges.

Meanwhile, Apple’s entry into the BNPL industry would increase the competition as the company is quite well-funded and generates billions of dollars of free cash flows every quarter.

Incidentally, BNPL stocks like Affirm came under pressure in 2021 also amid reports that Apple was considering entering the BNPL space. Yesterday, when the company officially announced its Pay Later service, Affirm stock fell over 7%.

Apple Sees Financial Services and Healthcare as Key Drivers

While Apple is best known for its gadgets like the iPhone, the company sees healthcare and financial services as key long-term drivers. AAPL CEO Tim Cook has said that healthcare would be the company’s “greatest contribution to mankind.”

Other tech companies like Amazon, Microsoft, and Alphabet also betting on the healthcare business.

Last year, during Apple’s earnings call for the fiscal first quarter of 2022, Cook listed financial services as a key opportunity for the company.

He said, “I would say that I think Apple Card has a great runway ahead of us. It was rated to the No. 1 midsized credit carding customer set by J.D. Power and is getting — has fast become people’s main credit card for many, many people.”

With Pay Later, Apple has added yet another dimension to its Services business whose growth has otherwise sagged in recent quarters with revenues rising just 6.4% in the December quarter.

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