Apple's strategic shift: From BNPL to installment loans

Investing.com - Apple Inc (NASDAQ:AAPL) has decided to discontinue its buy-now-pay-later (BNPL) service, Apple Pay Later, just a little over a year since its launch in March 2023. This decision comes amidst heightened regulatory scrutiny and competition within the sector.

Notably, the Australian government has recently raised regulatory standards by introducing new consumer protection laws for BNPL platforms, categorizing them as consumer credit.

Replacing its BNPL service, Apple is introducing third-party installment loans through Apple Pay. This move will enable users worldwide to apply for these loans when conducting transactions with Apple Pay.

In the US, Apple Pay users will now be able to apply for loans directly through Affirm, and soon, installments from credit and debit cards with Apple Pay will be available across the country with Citi, Synchrony, and issuers with Fiserv (NYSE:FI). Importantly, existing Apple Pay Later loans and purchases remain unaffected by this shift.

Analysts at Macquarie have weighed in on this development, noting that it could have a dual effect. On the positive side, it lessens competitive pressure in the BNPL space, which is beneficial for companies like PayPal (NASDAQ:PYPL) and Block Inc (NYSE:SQ) that have direct exposure to this market.

Conversely, the shift to a third-party dynamic might result in fewer loans, which could potentially have a minor impact. However, this impact is not expected to be significant.

The analysts also highlight the increasing regulatory pressure and scrutiny faced by BNPL providers globally, which might have prompted Apple to step back from offering a service explicitly labeled as BNPL. This move can be seen as Apple's strategy to mitigate potential risks.

The recent Australian legislation, which essentially regulates BNPL operators as consumer credit, underscores the risk of compliance becoming increasingly complex for BNPL operators.

The saturation and competitiveness of the BNPL landscape might have also influenced Apple's decision, as the company may see better use of resources elsewhere.