Apple has made a surprising move that’s been buzzing through the financial and tech communities – pulling the plug on its “Buy Now, Pay Later” (BNPL) service, Apple Pay Later.
This service had quickly grabbed a notable 17% share of the BNPL market (per ecommercedb’s latest insights), making waves as a promising addition to Apple’s financial suite.
So, why the sudden change?
Apple Tried Now, But Retired Later
The BNPL market – valued at a staggering $6.13 billion in 2022 – was projected to grow at a 26.1% compound annual growth rate (CAGR) from 2023 to 2030. So, when Apple made the foray into the BNPL market in March 2023, it was seen as a big play to compete with BNPL giants like Klarna, Affirm, and Afterpay.
Apple Pay Later’s model, allowing users to split purchases into four interest-free installments, was a hit, especially among younger demographics and those cautious of traditional credit.
By the end of 2023, Apple Pay Later had secured about 5% of the U.S. BNPL market. But such rapid growth came with its own challenges, eventually leading to its shutdown.
Why Did They Pull the Plug?
High Interest Rates
One of the main reasons Apple discontinued its Pay Later service is the current high-interest rate environment. Central banks, including the Federal Reserve, have hiked their benchmark interest rates to over 5% recently—the highest in more than a decade.
High interest rates make it financially unsustainable for companies to offer 0% loans. For Apple, maintaining a zero-interest loan product under these conditions was too costly. The increased borrowing costs made it hard to keep the service afloat without incurring losses.
Thus, Apple’s move to discontinue Pay Later seems strategic to avoid financial strain.
Fierce Competition
The BNPL market is intensely competitive. Major players like Klarna, Afterpay, and PayPal’s “Pay in 4” have established themselves with extensive partnerships with retail giants like H&M, IKEA, and Nike.
Apple Pay Later, which relied solely on debit cards, couldn’t match the widespread appeal of credit card rewards offered by competitors. This competitive pressure made it tough for Apple to maintain its market share.
Tighter Regulations
The Consumer Financial Protection Bureau (CFPB) has been vocal about stricter regulations for BNPL services, highlighting their potential risks, such as debt accumulation, data harvesting, and restrictions on user choice. and unclear fee disclosures.
More specifically, Apple prohibits banks and payment apps from accessing the tap-to-pay functionality on its devices, which forces users to rely on Apple Pay for such transactions. This restriction is seen as potentially anti-competitive and limiting consumer choice.
What’s more, the CFPB has pointed out that funds stored on popular payment apps like Apple Pay may not be protected by federal deposit insurance, which makes them vulnerable in the event of financial distress.
Apple, with its consumer-friendly image, likely considered these regulatory concerns heavily when deciding to exit the BNPL space.
What’s Next for Apple and Their Stake in the BNPL Market?
Impact on Apple’s Revenue
While Apple Pay Later wasn’t a major revenue driver compared to Apple’s hardware and other services, it represented a growing segment of the financial services market. BNPL transactions in the U.S. were estimated at around $3384.46 million in 2023, with Apple Pay Later contributing a notable share. Moving forward, Apple is expected to focus on more stable revenue sources, steering clear of high-risk financial products.
Stirring up the BNPL Market
Apple’s exit from the BNPL market marks a significant change in the competitive landscape. Established BNPL providers like Klarna, Affirm, and Afterpay now face one less competitor from the tech giant. This move could potentially stabilize the market by reducing competitive pressures and allowing existing players to consolidate their positions.
However, Apple’s continued focus on integrating financial services into Apple Pay could indirectly influence the industry by setting new standards for security and user experience. It has been at the forefront of online payment solutions as one of the most recognizable and secured bridge between their virtual wallets and your purchase, be it getting a pair of new kicks, cementing that vacation spot, or having some time down having a round or two of online table roulette. As with most live dealer casino games, having payment option and supported by Apple Pay is truly a rare sight, so when you see it, it immediately solidifies the legitimacy gaming operator you’re visiting, removing all the red flags. For Apple users, it undoubtedly entered every pore of their consumer day to day habits.
New Strategy in Deployment
Apple’s decision to discontinue Apple Pay Later signals a broader strategic pivot. Instead of running its own BNPL service, Apple plans to integrate installment loan options through partnerships with established financial institutions and fintech companies like Affirm. This global rollout will let Apple Pay users access installment loans from eligible credit and debit cards at checkout.
The Next Chapter in Consumer Financing?
Apple Pay’s discontinuation isn’t really a step back for Apple but a step up. it’s a strategic repositioning that hints at its broader vision for consumer financing. Rather than sticking to a model that’s increasingly fraught with regulatory and financial hurdles, Apple is choosing to innovate and adapt.
This means more options and better integration within the Apple ecosystem for worldwide consumers.
For the BNPL industry, Apple’s exit somewhat shakes up the competitive dynamics, but it also sets up a new standard. The focus on security, privacy, and seamless integration will likely push other players to enhance their own offerings to meet these new benchmarks.