Disrupting the disruptors: Big businesses eye off buy-now-pay-later

Major global businesses including Apple and PayPal have turned the tables on smaller payments disruptors by launching their own range of buy-now-pay-later products.

Major global businesses including Apple and PayPal have turned the tables on smaller payments disruptors by launching their own range of buy-now-pay-later products.

Shares in buy-now-pay-later (BNPL) leaders, Afterpay and Zip Co, took a battering last Wednesday after reports broke that Apple – the largest listed company in the world – intends to launch its own BNPL service.

The simply-named Apple Pay Later is designed to attract more users onto Apple’s existing payments platform Apple Pay, driving more people to pay with their phones rather than conventional credit and debit cards.

Apple has partnered with global investment bank Goldman Sachs to bring the new service to consumers. 

News of Apple’s foray into the space came the same week that digital payments provider PayPal launched its own BNPL service called PayPal Pay in 4.

The company has over 9 million active users in Australia, and eligible users will now be given the option to pay for their purchases in instalments through the standard PayPal digital wallet.

Validation and endangerment

In response to the news, Zip Co said Apple’s efforts to enter the BNPL market validate the products already on the market, and welcomed the competition from new players.

Even so, many experts are concerned larger companies like Apple and PayPal will utilise their larger balance sheets to fight for market share.

Speaking to Sydney Morning Herald, Atlas Funds Management CIO Hugh Dive described both Apple and PayPal as “gorillas with enormous cash balances that can handle a lot of pain”.

With Visa and Mastercard also introducing their own products in overseas markets, some analysts are warning smaller fintech providers may soon feel the heat.

“The wild-west of payments is turning back to credit-risk-sensitive players,” Mercator Advisory Group credit advisory service director Brian Riley said.

“Traditional lenders will not easily cede the market. In fact, I would argue they are starting to play outside of their traditional comfort zone”. 

“Financial institutions got the message, and they are in the game, too” Brian further added.

Morningstar analyst Shaun Ler separately said the entry of large incumbent players emphasises the need for smaller BNPL players to diversify their product offering, to extend beyond easily-replicated four-instalment payment plans.

Afterpay have already acted on this impulse, striking a deal with Westpac in late 2020 to provide customers with savings accounts.

Some fund managers are keeping a close eye on the fintech sector for new opportunities. Lee IaFraté, Executive Chairman of Armytage Private Limited pointed out the microcap fintech sector as one of his sector preferences in a recent investor briefing. The sector delivered his fund success beyond expectations and he believes more opportunities are yet to present themselves.

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