By Clancy Yeates
Investors have warned that Afterpay and other buy now, pay later (BNPL) firms face a formidable potential rival in technology giant Apple, the latest global player eyeing off the booming sector.
Shares in high-flying BNPL firms tanked on Wednesday, after Bloomberg reported Apple was working on a plan to offer Afterpay-style instalment loans to its tens of millions of US customers through a partnership with Goldman Sachs.
Such a move would bring Apple, the largest listed company in the world, into direct competition with the likes of Afterpay in the critical US market.
The upcoming service, known internally as Apple Pay Later, will use Goldman Sachs as the lender for the loans needed for the installment offerings, according to people with knowledge of the matter.Credit: AP
Analysts said Apple’s mooted product appeared different to Afterpay in key respects, but the potential entry of the tech giant still underscored the risk of fierce competition from deep-pocketed rivals.
Shares in Afterpay dropped 9.6 per cent $107, Zip Co plunged 11.4 per cent to $7.32, and Sezzle fell 10.3 per cent to $7.96.
The threat of competition from Apple, which has a market capitalisation of $US2.4 trillion, comes as rivalry is also increasing in Australia. Payments giant PayPal this week launched its Australian BNPL product and said it would waive late fees, and the Commonwealth Bank will launch its BNPL offering next month.
Chief investment officer at Atlas Funds Management, Hugh Dive, said Afterpay’s high market valuation left no margin for error or risks such as major new rivals emerging. Apple and PayPal were big enough to dig in for a long fight for customers, he said. “There’s two pretty big gorillas with enormous cash balances that can handle a lot of pain,” he said.
Chief executive of payments consultancy McLean Roche, Grant Halverson, characterised BNPL firms as “mice” compared with “elephants” such as Goldman and Apple, which he said could “kill off” most BNPL operators.
BNPL operators allow customers to purchase goods and services upfront, and then repay the money through interest-free instalments. The products have proven a hit with younger customers, who are increasingly turning away from credit cards and personal loans.
Milford Asset Management investment analyst Roland Houghton said Apple had the advantages of potentially enormous reach in signing up customers and a trusted brand, and it underlined the threat of competition in the sector.
“Any new competitor is obviously bad, and Apple is probably a formidable and somewhat unexpected competitor,” Mr Houghton said.
Even so, Mr Houghton said he thought Afterpay’s ability to generate leads for retailers - as opposed to just arranging payments - gave the ASX-listed firm an advantage.
Despite the threat, analysts and the companies themselves indicated competition from Apple was not a surprise, and BNPL specialists could succeed by providing value beyond mere payments.
Evans and Partners analyst Matthew Wilson said Apple’s entry would “legitimise” the BNPL firms’ pay-in-four offering, and Afterpay would increasingly become a platform that earned most of its fees from generating leads for merchants.
Morningstar analyst Shaun Ler said the potential move by Apple highlighted the need for BNPL to offer more than a “pay-in-four” product, which could be easily replicated. Afterpay, for example, will soon offer deposits in Australia through a partnership with Westpac. “I think Afterpay should still be able to navigate this because they are a first-mover,” Mr Ler said.
Shares in local BNPL operators have slumped on Tuesday after reports Apple is entering the sector.Credit: Dominic Lorrimer
Apple and Goldman declined to comment.
An Afterpay spokeswoman said the company’s platform had never been only about processing transactions, and it had achieved growth by creating value for retail clients.
A Zip spokesman said the company welcomed the competition, and Apple’s move validated BNPL products. “Zip and all the other players continue to grow - despite increasing competition - at the expense of credit cards and other payment types - not each other,” he said.
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