Interest-Free Offer

Apple (AAPL) has announced it will offer a buy now pay later (BNPL) service to its customers, leaning on its substantial cash reserves to back the loans. Using “Apple Pay Later,” shoppers will be able to pay for their Apple purchases over time, in four interest-free installments.

This service will expand the tech giant’s financial service products that include mobile payments and credit cards. Apple’s move into the space will mark a significant shift in the competitive landscape for BNPL pioneers like PayPal (PYPL), Affirm (AFRM), and Klarna.

Hostile Environment

The original fintech firms offering buy now pay later services were already feeling pressure due to an increasingly hostile economic environment. Interest rate increases are compressing the companies’ bottom lines, as their credit lines have in turn become more expensive.

Market observers note that Apple’s entry into the space may siphon off customers from these firms, intensifying the headwinds they face. Signs of stress are apparent as Affirm has seen its share price decline by double-digits following Apple’s announcement. Klarna recently dismissed 10% of its workforce.

Regulators Take Notice

The rising-rate environment has gotten regulators attention amid concerns that BNPL programs encourage consumers to get in over their heads. At some point those purchases have to be paid for and many are already stretched thin. Broadly stated, inflation continues to take a big bite out of Americans’ spending power.

Some advisors urge caution before consumers use BNPL options. The excitement of getting that product today can easily overshadow the reality behind tomorrow’s payment.

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