EXCLUSIVE: BNPL Wars – Are Apple & Revolut Taking A Bite Out Of Klarna?

Around 7 months ago, I pondered whether Apple was making steps to become a bank after they announced their plan to turn its phones into digital identification cards in American states. Fast forward to now, and Apple continues to make ventures which convince me that becoming a bank is just a matter of steps, or strides, away. Apple’s latest venture into the BNPL market typifies exactly that, with it having the potential to drastically alter the power balance against key industry leaders.

Apple announced its Apple Pay Later service in which customers can make either mobile or online purchases in four instalments over a period of six weeks. Users of the Apple Pay Later service will need to be approved by submitting an application through the iPhone’s Wallet app, where they will also be able to manage their payments.

Apple Pay Later will largely be available from September for its iPhone users as part of the iOS 16 upgrade. This further shows the consolidation of financial history and activity through Apple, given that their payment services are already accepted by 85% of all US retailers. Similar to the 80+ Fintech BNPL choices we have, Apple Pay Later loans will have a $1000 cap to begin with. Goldman Sachs acts as the lender for loans, as the system looks to nudge more people to pay for items using their iPhones, rather than their standard debit/credit cards which will ride Mastercard’s debit rails.

What does this mean for competitors in the BNPL market? Generally, incumbents are likely fearing that Apple could draw clients away from the likes of PayPal, Affirm and Klarna. In fact, shares of Affirm had reportedly sunk by 17%, almost confirming the worries.

The BNPL market has had its doubters, with some believing it hit its ceiling in 2022. If we look towards Klarna, the company laid off 10% of its global workforce last month. Whilst they reasoned this down to the war in Ukraine and global fears of a recession, could Apple’s entry further disrupt their base?

Recent evidence would suggest that Klarna have a lot to be fearful of, after a serious drop in their valuation from $46 billion to $15 billion between June 2021 and June 2022. Whilst this is largely reflective of the punishing environment that many tech firms are operating in at the moment, the drop is too big to ignore, and perhaps big enough for new players to lead the torch.

As for PayPal, the company looks set to expand their own BNPL offering with a longer-term payment plan. Pay Monthly is valid for purchases between $199 and $10,000, approximately $8,500 more than the Pay in four program . The cost will be split across monthly payments of between six and 24 months too, as opposed to a six week period. Unlike Apple Pay Later though, retailers will have to sign up for the program.

Apple has definitely inspired new entrants too, as Revolut have recently rolled out its Pay Later feature in Europe as it continues to expand its suite of products to help people get more from their money. Revolut Pay Later is the first pay later product in Ireland that uses an approved credit limit, designed to focus on affordability. Revolut puts the customer in control of when they want to use Pay Later for rather than being restricted to certain merchant partnerships.

Beginning this week, some Revolut customers in Ireland will be eligible for early access to Pay Later, which will gradually roll out to all users in Ireland – where 1.9m adults have a Revolut account. Pending the sign-ups for Pay Later, Revolut will look to offer the product in additional markets from the end of 2022 and beyond, with Poland and Romania to be the next markets gaining access to the product later this year.

Qualified customers can use Pay Later for purchases up to a maximum of €499, with any of their Revolut cards, including when paying with a Revolut Disposable Virtual Card which provides an extra layer of security for online transactions.

This latest venture from Apple is part of a series of steps that suggest, in my opinion, the move towards a bank is coming. As mentioned at the start, several months ago Apple began rolling out its digital ID feature, encouraging states to allocate reasonably sufficient personnel and resources’ to issue and service credentials, employ specialist project managers who can deal with Apple inquiries and enforce the systemic adoption of Apple services. What I’m getting at here is how Apple is continuing to make its services appear as essential as ever, to the point where becoming a trusted and qualified bank is just a natural evolution.

In March 2022, Arizona became the first state to offer driver’s licence and state ID in Wallet. Arizonans can add their driver’s licence or state ID to Wallet, and tap their iPhone or Apple Watch to seamlessly and securely present it at select TSA security checkpoints in Phoenix Sky Harbor International Airport. Biometric authentication using Face ID and Touch ID helps ensure that only the person who added the ID to the device can view or present their ID or licence in Wallet. Just a month ago it expanded into Maryland, and with the potential to do so in Mississippi as well.

Apple’s acquisition of UK Open Banking startup, Credit Kudos, of around $150 million, is also worth mentioning. Open Banking adoption is estimated to hit 70% among lenders by 2023. In the months from September 2021 to January 2022, UK users of Open Banking services rose from 4 million to 5 million. The adoption is happening. 75% of these people said it’s improving their ability to reduce fees and balance their budgets. Apple is getting ready for the shift and since Credit Kudos is authorised by the Financial Conduct Authority , counting Curve, Admiral and Atom bank amongst its users, can we really ignore all of these links being made right in front of us?

What do you think the future holds? As for the BNPL market, will Klarna’s dominance finally waine due to these new entrants? Is this merely a classic example of big tech players doing fintech better than the fintechs? Or is this something much more calculated, as part of a long term strategy to turn Apple into a bank? All avenues are possible, let us know what you think!