Shares in the ‘buy now, pay later’ sector was dragged down after a report that Apple is working on a service to let users pay for purchases in installments surfaced. Shares of Australia-listed company Afterpay, declined almost 10% on Wednesday. Afterpay is Australia’s largest buy-now-pay-later service, with 73% of the total market by dollar value. A big part of its revenue also comes from the United States.
Shares of smaller rival companies Zip Co Ltd and Sezzle, dived sharply. Shares of Affirm Holdings Inc tumbled more than 14% on Tuesday and closed 10.5% lower.
The ‘buy now, pay later’ sector thrived during the pandemic as online shoppers look for easier repayment options. Thanks to the service, customers enjoyed flexibility in paying off their loans.
The coronavirus pandemic increased the rate of online shopping, causing a splash in the ‘buy now, pay later’ sector. According to a McKinsey report, the number of merchants in the U.S. who added the repayment option nearly tripled in 2020.
A Deloitte report also has it that 30% of the consumers in Australia have a ‘buy now, pay later’ account. In Australia, the regulation of the mushrooming industry is light, and adoption is higher compared to other markets.
The boom in the ‘buy now, pay later’ sector caught the attention of Swedish firm Klarna, and U.S. payment giant, PayPal.
On Tuesday, PayPal launched its ‘buy now, pay later’ service in Australia. The company edged past rival companies, such as Afterpay, by stating that it would not charge fees on late payment; a feature of the ‘buy now, pay later’ option that earned Afterpay close to A$70 million in the 2020 fiscal year. The company also lowered its minimum purchase value from A$50 to A$30. Customers would be able to pay off purchases in 4 equal fortnightly installments, with zero late fees charged if they miss a payment.
Apple will partner with Goldman Sachs in lending the loans. Goldman Sachs has been the U.S tech giant’s partner for the Apple credit card since 2019.
Now that Apple has ventured into the sector, buy-now-pay-later companies have a behemoth to contend with. Given its wide reach and superior consumer experience on a mobile website, Apple Pay stands as a bigger threat than potential offerings from banks or credit companies.
Apple Pay’s model is similar to that of rivals Klarna, Afterpay, PayPal, and Affirm. Users would be allowed to pay in four interest-free installments, or across several months with interest.