Amid the hype for Apple’s BNPL, I am sceptical… and here is why

What looks like an evolution of Apple’s relationship with Marcus — may be an evolution of Apple e-commerce payment / button game, allowing participating banks to connect their credit to payments made online.

  1. Nominally, this looks like a push by GS’s Marcus to bolster the partnership that Apple has in the US, as the card function a) competes with other card offers people can link to Apple Pay b) has on-par loyalty / cash-back, that premium cards by leading providers like Chase provide better.
  2. The Apple Card did not have proper upgrade since the card’s launch. Apple indeed piloted installment on its user-base for Apple wares and may have seen the group is scalable to non Apple products — where financial installment is required to cover the interest of the instalment.
  3. It is still offered as a feature that comes after the user has paid: implying that the user has the means to cover the payment, that in US is usually also of credit nature. There is a high probability that users applying for Apple BNPL, already have other credit products , and that Apple might know from onboarding these card programs into Apple Pay. So Apple would have to fight hard that user switch — so BPNL alone is not enough.
  4. Apple might exacerbate relationship with credit card originators, if it pushes BNPL too hard as a pay-first product, so it is integrating it as a feature to announce to users that they can distribute the credit burden through a Marcus-built product. The question is whether Marcus wants to be such a provider and if it has the capacity (where it deposits base grew to over 200 billion USD last year, it is still minuscule compared to 1.7 trillion each held by leaders.
  5. The current leaked plans are incomplete:
  • Motivation to use BNPL from Apple, when offered after purchase, where BPNL leaders push for BNPL as a first choice when deciding to make a payment
  • Financial nature of coverage vs. merchant discount negotiated by instalment originator makes this for now an inferior product
  • Forcing instalment as first choice will make US banks unhappy — as they themselves feel the pressure from “alternative methods”.
  • For now it looks like a forced hand by Marcus to further develop Apple exclusive relationship.

Could be better if..

  1. Apple focussed on transactional loyalty. Its users are fiendishly loyal, arguing endlessly as to why Apple platform is better on so many fronts, and it could have scaled the motivation to spend x amount through the platform. This forms the desire to spend that is more effective, than thinking about whether or not to refinance through Apple instalment, after the payment is made.
  2. Even if one adds a potential valuation of Klarna, or Affirm or others to Apple, it is negligible in the 2 trillion valuation Apple has. The value of Klarna or similar BNPL is the way the instalment is offered and how this is communicated as a method to buy something in the first place. Sales force and merchant relationship, stimulating sales is pivotal in this game — creating ability to negotiate fees to cover instalment that otherwise comes at a cost for the user — that expect payments to be free.
  3. My take is that Apple next domain where BNPL is a killer is not a PL function coupled with Apple Pay on the phone — but on the web. Apple penetration in e-commerce is still relatively small: Apple can integrate both pay now and Pay Later in one tap of Apple Pay button that merchants can display. Apple can then let the user decide how to finance among the options available.
  4. That said, this is a e-commerce product, but limited to financial prowess of loan originator and other banks will be invited to participate in Apple BNPL to connect their credit products like they did their cards — once again allowing banks to up their game vs. fintech players.

Only a human. VC at @gauss_vc