Apple launches the American version of Huabei? This new business may be even more aggressive than Huabei

Cai Lian News, March 29 (Editor Maran) Apple launched its long-warmed Buy Now Pay Later (BNPL) service in the United States on Tuesday, which is expected to gnaw a big piece of the cake in the US BNPL industry.

Apple said the service, called Apple Pay Later, will allow users to split payments into four installments that will be repaid in six-week installments without customers paying fees or interest. Select users will try the service before it is rolled out nationwide.

This payment model seems to be somewhat similar to the credit cards and Huabei that we are familiar with, and it is the same as buy first and enjoy first, but BNPL providers, including Apple, can play a zero-interest and zero-fee payment combination, which seems to be more skilled than credit cards and Huabei.

People are also quite confused, what do BNPL merchants do to provide financing without making money from consumers?

Draw the retailer's into

Traditional consumer loans, whether credit cards or Huabei, are based on a profit model that charges customer fees and interest.

For consumer loans like Huabei, although there is a grace period of up to one month, the lender still needs to repay the full amount by a fixed time next month, or choose to pay in installments, but pay a certain fee and interest. Credit cards are more stringent in terms of approval, but the basic logic is still similar to Huabei.

However, BNPL is clearly different from credit cards and Huabei in the underlying logic. Its profit does not depend on the lender, but on the merchant of the goods purchased by the lender, the BNPL provider, which charges the retailer a fee to make money.

One of the key reasons retailers can accept BNPL providers' commissions or fees is that consumers intentionally or unintentionally increase their spending through instalments. Retailers can use this to increase pricing or launch promotions with more products to improve performance.

On the other hand, the main advantages of BNPL over credit cards are that they do not charge interest and are easier to get approved. And because BNPL is not currently officially included in the scoring criteria of credit bureaus in the United States, many people see BNPL services as a low-threshold alternative to credit cards.

The attractiveness of the large number of ordinary consumers who are willing to see BNPL as a new financing option has naturally become a factor that retailers have to consider.

Leverage consumer loans

The easy-to-approve model has also made BNPL quickly become an upstart in the payment industry.

Fintech services company Provenir predicts that the BNPL market will reach $155 billion in 2023 and $744 billion by 2027. It also believes that consumers and businesses will increasingly turn to BNPL, and that the industry will change the way our generation thinks about financing purchases.

This naturally has some problems. A spokesperson for Swedish BNPL giant Klarna has explained that the company performs soft credit checks on users, that is, refers to customers' credit reports and assesses customers' credit risk on their own. However, the customer's use of BNPL will not affect the customer's own credit score.

Lenders in poor financial condition easily obtained loans because they did not strictly check their credit, allowing BNPL to accumulate risk on themselves. While some of the delinquent payments can be recovered by late fees, if there is a large amount of bad debt, it will be a great crisis for BNPL providers.

However, according to large companies in the industry, the risk is manageable. Klarna noted that the credit it provides has a clear repayment plan and affordability checks. Clearpay said the customer's initial spending limit was low, and if there was a default on a single payment, it would suspend the account to control losses.

In addition, BNPL providers also said they are actively participating in customer credit checks and continuously monitoring credit and affordability.

Apple's threat

Unlike companies that have been deeply engaged in BNPL for many years, Apple's version of BNPL entering the US market is more like a "harvest".

According to Apple, more than 85% of U.S. retailers accept Apple Pay. This means that Apple's BNPL started with a "rich second generation" halo, directly distanced itself from those self-made "poor boys".

Danni Hewson, head of financial analysis at British investment platform AJ Bell, said Apple Pay Later will definitely beat other players in the market because Apple is a ubiquitous brand that will erode market share for other players.

On Tuesday, Apple announced the launch of its BNPL service, shares of its BNPL rival Affirm fell 7.34 percent, and shares of PayPal involved in the BNPL business also edged down 0.82 percent.

However, this does not mean that Apple can rest easy. In addition to the structure of the industry itself, the current environment in the United States is not ideal for credit.

Today, the United States is still mired in high inflation, consumers inevitably tighten their wallets, and even if BNPL is fragrant, it cannot hold Americans' concerns about pocket shyness. Coupled with the shadow of the banking crisis, most consumers have become more cautious about spending money.

D.A. Davidson analyst Christopher Brendler believes that in this macro environment, Apple will tread cautiously and will most likely not look for partners, but directly underwrite and recover loans on its own.