Apple Pay Later just crushed Affirm’s dreams, but it’s a big win for 2 Fintech giants
Apple (AAPL 1.25%) attracts worldwide attention when it hosts its developer conferences, as consumers, vendors and tech professionals all eagerly await the latest innovations from the iPhone maker. Yet while many are paying the most attention to the latest product releases, Monday’s announcement of its Apple Pay Later service sent shockwaves through the fintech space.
Buy Now, Pay Later (BNPL) from specialists like Affirm Assets (AFRM -0.80%) were the most obvious targets of Apple’s decision. Indeed, Affirm’s stock fell 5.5% on Monday, with much of the decline coming after the conference call was announced. However, Apple Pay Later has further cemented a key partnership between the tech pioneer and two major players in the financial industry, and it could bring them big profits for years to come.
Apple goes its own way
Apple has announced that its new iOS 16 operating system software includes a new feature in the Apple Wallet. Apple Pay Later will offer the same flexibility that customers have come to expect from BNPL services from competing providers.
In particular, with Apple Pay Later, users in the United States will be able to take purchases they use the Apple Pay feature for in Wallet and split them into four equal payments over six weeks. Apple will charge 0% interest and add no fees.
The drop in Affirm’s stock price in response suggests that at least some investors had hoped that Apple would choose to go the partnership route rather than launch its own BNPL program. The announcement last summer that Amazon.co.uk chose Affirm as a BNPL partner showed how valuable the e-commerce giant believes the growing supply of fintech is. With Affirm users showing a demographic trend toward younger shoppers, investors hoped that Apple would come to the same conclusion as Amazon and work with Affirm, rather than against it.
How Mastercard and Goldman Sachs could win with Apple Pay Later
Despite the hopes of Affirm shareholders, Apple Pay Later didn’t come as a big surprise. Almost a year ago, reports surfaced that Apple was working with key partners to develop its own BNPL service. And now that the news is out, it’s another win for these partners: MasterCard (MY 0.37%) and Goldman Sachs (GS -0.01%).
Mastercard stands to benefit from Apple Pay Later because Apple uses Mastercard’s payment network to handle installment payments under the program. Mastercard fought to distinguish itself from its great rival, Visa. Consolidating a relationship that began when the iPhone maker chose Mastercard for its Apple Card will further strengthen the No. 2 payment network provider’s reputation with consumers.
Meanwhile, although the statement did not specifically mention Goldman, the Wall Street banking giant is likely to be the lender behind the short-term installment loans under the BNPL program. Goldman is the Apple Card-issuing bank, and its decision to work more closely with Apple came at the same time it chose to move aggressively into the company’s consumer banking business with its online banking. Marcus.
Will Apple Pay Later be a success?
Both Goldman and Mastercard are big enough that news of Apple Pay Later had no discernible impact on their stock prices. To reap the rewards of Goldman and Mastercard’s expanded partnership with Apple, Apple Pay Later will need to prove that it can effectively compete with Affirm and its disruptive BNPL peers.
One of the keys to Apple Pay Later’s success will be its execution. Looking carefully at the version, users will be able to to apply for Apple Pay Later when using Apple Pay to pay, but this is not a guarantee of acceptance. Goldman’s thoroughness in underwriting could be a major factor in how consumers perceive Apple Pay Later and how profitable it will be for the bank and Mastercard, as a payment network provider.
Additionally, Apple Pay Later is relatively inflexible, offering only one refund option. Many buyers appreciate the wider range of payment schedules from BNPL’s other providers, although consumer advocates have criticized the higher costs in fees and interest that some of them entail.
Nonetheless, being associated with Apple’s ecosystem could have long-term benefits for Mastercard and Goldman Sachs. The strength of the two financial giants’ underlying businesses makes Apple Pay Later an additional opportunity to drive their growth.