Apple partners with Affirm to maintain competitive edge in US mobile wallet space

The most popular mobile wallet in the US, Apple Pay, announced that it is scrapping the installment loan scheme Apple Pay Later, which was launched in March 2023 as an addition to the country’s competitive buy-now-pay-later (BNPL) landscape. Instead, Apple will continue to offer BNPL Credit at checkouts that accept Apple Pay in the US through third-party provider Affirm.

GlobalData’s E-Commerce Analytics

Although the US is BNPL’s largest market by value globally, GlobalData’s E-commerce analysis shows that BNPL payments account for only 5.8% of the US e-commerce market.

The BNPL market has seen steady growth globally since the emergence of Klarna and Afterpay in the 2010s, but providers’ operating models are being challenged now more than ever. First, the 5.25 percentage point increase in the Fed funds rate since March 2022 has made financing these loans more expensive.

The rising cost of living during this period reduced disposable income and resulted in higher default rates and a general slowdown in spending. Recently, the Consumer Financial Protection Bureau issued a rule extending the Truth in Lending Act to BNPL services, to harmonize consumer protection measures with existing credit card regulations.

Compliance costs will therefore add to the issue of already diluted margins of BNPL operators, who continue to compete in BNPL’s fragmented US market. A little more than a year after the launch of Apple Pay Later, Apple found itself in a position where it was unlikely to generate significant profits from offering installment loans in this market environment, and will now deploy its BNPL product instead. a well-known provider to maintain Apple Pay’s competitive edge in the US mobile wallet landscape. Affirm is the preferred BNPL provider of choice for 21% of Americans, just 1pp behind leading solution PayPal Pay at 3 and closely followed by Afterpay at 17%, according to GlobalData’s Buy now Pay Later Analytics 2023.

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Source: GlobalData’s Buy now Pay Later Analytics 2023

While more consolidation among BNPL firms can be expected against the current US market backdrop, Apple found new ways through Apple Pay to retain current users and bring new ones into its ecosystem. In addition to achieving Affirm integration with the next update in October 2024, iPhone users will now be able to send and receive Apple Cash in real-time with the touch of two phones. The Tap to Cash feature will facilitate peer-to-peer (P2P) payments on the spot via NFC technology, without the need to exchange any information.

GlobalData 2023 P2P Payments Analysis

Despite limiting the use case to being physically present, the service will be welcomed by Americans whose top considerations for sending money are speed, simplicity and a trusted brand, according to GlobalData’s P2P Payments Analytics 2023. Apple’s quick exit from the BNPL market to focus on strengthening functions of the Apple Pay ecosystem is in line with the company’s broader strategy.

Blandina Hanna Szalay is a banking and payments analyst at GlobalData

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