While Apple’s AI advancements dominated headlines this week, a significant announcement for the Buy Now, Pay Later (BNPL) industry also emerged. Apple revealed that Apple Pay users across the US will soon have the option to use Affirm for BNPL purchases. This news immediately propelled Affirm’s stock, with shares jumping over 11% as the company gains access to Apple Pay’s vast user base.
The BNPL landscape has become increasingly competitive, with early players like Affirm and Klarna facing challenges from tech giants like PayPal and retail leaders such as Walmart. These companies recognized the potential of installment payments, leading to a crowded market. Affirm has been actively innovating to maintain its edge, recently introducing features like Pay in 2, allowing customers to split payments into just two installments.
BNPL Under Regulatory Scrutiny
The BNPL sector is also navigating increased regulatory attention. The Consumer Financial Protection Bureau (CFPB) has begun to classify BNPL lenders similarly to credit card companies, imposing requirements for consumer safeguards and protections. This increased scrutiny highlights the maturing nature of the BNPL market and the need for responsible lending practices.
Despite these challenges and a history of unprofitability, the Apple Pay partnership is a major win for Affirm. The company has accumulated $2.8 billion in losses since 2019, achieving only one profitable quarter. Affirm’s revenue model relies on interest from some loans and merchant fees for facilitating BNPL transactions. The ability to offer 0% interest options and no late fees, while attractive to consumers, necessitates substantial reserves for potential defaults, impacting profitability. Integrating with Apple Pay provides Affirm with a significant growth opportunity and a potential pathway to sustainable profitability by tapping into Apple’s massive user ecosystem.
