What impact will Apple’s buy now, pay later push have on startups?

Bloomberg broke news earlier this week that Apple, the consumer hardware giant with a rising services focus, is building a buy now, pay later (BNPL) service that will integrate with its Apple Pay system. The news sent shares of Affirm down just over 10% by the end of the day, and it shed 2.5% of its value yesterday. It’s off a little more than 61% from the highs it set after debuting earlier this year.

In light of information that Apple could cut into Affirm’s business, investors decided the former consumer fintech unicorn and present-day public BNPL company was worth less. Why? Because rising competition from a player like Apple may limit its growth over time, impacting later profitability. Or more simply, public-market investors decided that the present value of its future cash flows had declined.

It’s not fair to focus on Affirm, of course. Afterpay is also a public BNPL firm; its shares also fell this week, slipping a similar 10% since its close on July 12, the day before the Apple news broke.

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Those are just two names. There are a host of rival BNPL concerns in the world, from small startups to private-market giants like Klarna. Affirm and Afterpay, however, as focused companies in the space that also float, make for a useful window into how investors’ views on the sector are changing in light of the recent Apple announcement.

Our question is what impact the Apple news item may have on startups, given that Apple Pay itself already accounts for about 5% of global card transactions (according to one analysis at least). The answer, I think, is that it will vary a lot based on the focus of the BNPL startup in question. The more specialized the BNPL provider, the less likely that Apple’s eventual foray into the BNPL space may prove combative; the more general the BNPL player, the more likely that Apple could cut into its business.

Why? Distribution and customer expertise.

This isn’t to say that Affirm, Afterpay and other BNPL players are set to follow the dodo; far from it. But if Apple wades into the BNPL market as anticipated, its Apple Pay service could provide a strong distribution network that may ease consumer onboarding. That Apple has also launched a credit card tied to its Apple Pay efforts and offers a lightweight cash-management solution in the United States could also lower the threshold for uptake of the product because consumers are already becoming comfortable with Apple as a banking player of sorts.

Apple also controls massive digital marketplaces, albeit places where BNPL services may prove less pertinent. But it controls brick-and-mortar stores for its own goods around the world, and a global e-commerce operation via its own websites that could provide extra distribution for BNPL services from the company. Simply: Apple sells a lot of pricey products that would be good candidates for BNPL purchases.

All of that will hit some startups. Let’s talk about which are going to dodge the incoming competitive bullet.

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