PayPal a bigger threat to Afterpay and Zip than Apple

While shares in Australia’s buy now pay later have tanked following reports that Apple was looking to launch its own BNPL product, Citi analysts have dismissed the view that the tech giant could pose much danger to Afterpay or Zip. 

Citi said Apple Pay’s new instalment option might threaten potential offerings from banks or credit companies - given its wide reach - but argued that PayPay presented a bigger menace to Australia’s BNPL players. 

The broker report followed a Bloomberg story that Apple will launch a service to let shoppers pay for purchases in instalments that will challenge Australia’s buy now pay later operators in the lucrative US market. 

Bloomberg said the service will allow Apple Pay users to pay for their purchases through four interest-free payments made every two weeks or across several months with interest, according to the report.  

Citi analyst Siraj Ahmed said the Bloomberg article noted that consumers would be able to repay the Apple Pay instalments using any credit card. "If the repayments are limited to credit cards, then we see the potential impact to Afterpay and Quadpay as limited given 90 percent of Afterpay transactions use a debit card," he said.  

Acknowledging the lack of details given, Ahmed said the Apple Pay service would be a bigger threat to the Commonwealth Bank’s Step Pay than to Afterpay or Zip given Apple Pay’s wide consumer reach and given that it is card/bank agnostic. 

“In our view, the Apple Pay Later service is yet another consumer side offering, and do not see it as competing with Afterpay or Zip directly on the merchant side,” Ahmed said. 

“However, given PayPal’s two-sided network, we see PayPal as a bigger threat to Afterpay and Zip.” 

Validates the trend to BNPL 

Ahmed also noted that Apple Pay is a checkout option on many retailer websites and provides a superior consumer experience on a mobile website or in-store.  

For Ahmed, the potential launch of an Apple Pay BNPL service further validates the structural trend towards instalment payments.  

“We continue to see a future state where the ability to Pay in 4 will become a commodity. The key to success for Afterpay and Zip is their ability to be more than a payment option and own the consumer’s shopping experience through their app and website. Consumer engagement and usage levels are the key factors to success." 

Given the size and scale, the analyst views Afterpay as being in a relatively stronger position than Zip but urged it to continue to invest and innovate on the consumer front. 

News of the looming competitive threat came just as payments giant PayPal launched its interest-free service in Australia and said it would not charge late fees. 

CBA will launch its BNPL offering next month. 


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