As more people were forced to shop online due to the COVID-19 pandemic, buy now, pay later (BNPL) became extremely popular, and customers have continued to find value in the product. According to Adobe Analytics, BNPL loans accounted for USD 75 billion in online spending in 2023, an increase of 14.3% from 2022.

Apple stated that its new system “will allow us to work with banks and lenders that support Apple Pay to bring flexible payments to more users, in more places across the globe.”

The company stopped talking about why it was discontinuing its independent BNPL offering. The Wallet app will continue to allow current BNPL customers to manage and pay for open loans, according to the company.

The Apple Pay Later service is used to allow its users to take out loans and split purchases into four instalments without paying interest or fees. As the product is witnessing a reboot, the company has confirmed that the existing users with “Pay Later Loans” will be able to track them within the Wallet app, but no new loans will be issued.

Apple Pay users will have access to new instalment loan options this fall, including the option to apply for BNPL loans directly through Affirm when they check out with Apple Pay, the company announced. The tech giant also announced that customers would also be able to access instalments from credit and debit cards.

Analysts had considered Affirm and other BNPL providers to be competitors of Apple’s initial BNPL product. It gave clients the option to purchase goods up to USD 1,000 and pay for them in four interest-free payments.

Customers can choose between paying for goods in two or four instalments with Affirm, or they can choose to pay for more expensive items in monthly instalments.

“To me, this sounds a lot like what we see happening with debit cards. Regardless of which debit card a consumer has funded their purchases, as long as they use Apple Pay, it’s Apple that owns the experience,” Sean Gelles, director of payments intelligence at JD Power, said.

Gelles went on to say that there would be “minimal risk for Apple as they will thereby retain the relationship with the customer” if Apple Pay was used to deliver its new line of BNPL products.

All You Need to Know About Pay Later Service

Apple first announced the launch of this new service with the iOS 16 update in 2022, and the tech giant began rolling out the feature via ‘early access’ in March 2023. However, the feature was not officially launched and made part of the Wallet app until October 2023.

Launched in partnership with Mastercard and Goldman Sachs, the Pay Later service was the first occasion of Apple offering short-term loans on its own. With the service coming to an end in 2024, Apple will switch to a built-in instalment loan feature, which will be added with the iOS 18 update.

As announced by the venture in the recently concluded WWDC 2024, the instalment loan feature would first be rolled out to the United Kingdom users, with support for HSBC and Monzo banks.

Apple told the media, “Starting later this year (2024), users across the globe will be able to access instalment loans offered through credit and debit cards, as well as lenders, when checking out with Apple Pay. With the introduction of this new global instalment loan offering, we will no longer offer Apple Pay Later in the US.”

“Our focus continues to be on providing our users with access to easy, secure and private payment options with Apple Pay, and this solution will enable us to bring flexible payments to more users, in more places across the globe, in collaboration with Apple Pay enabled banks and lenders.” the tech giant concluded.

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Just as the internet has transformed communication and connectivity, fintech is now revolutionizing the world’s banking and financial ecosystem. Fintech’s evolution is a testimony to how it has changed the financial sector and will further disrupt it.

Early days

In the 90s, when the internet started booming, a diverse group of individuals came together to develop a digital payments ecosystem. PayPal was perhaps one of the first entities to provide customers with a reliable system of making fast, effortless and cashless payments. After a roller-coaster journey following early successes, PayPal was eventually acquired by eBay. One of the co-founders and members of the “PayPal Mafia” eventually went on to create Affirm, a prominent fintech player in the BNPL (Buy Now Pay Later) segment.

The early 2000s saw many companies trying to emulate PayPal and offer cashless payment systems. The progress of technology helped them in their endeavor. However, the events of 2008, culminating in the collapse of Lehman Brothers triggered a massive global financial crisis (GFC). Subsequently, general distrust in the banking system saw cash become king again. Resultantly, the digital money ecosystem saw limited traction till the smartphone became ubiquitous.

The smartphone gave a boost to the digital payments industry and electronic wallets acquired universal acceptance. The penetration of the smartphone, even in developing countries such as India, heralded a new age of progress in the fintech space. China became the new epicenter of a revolution in fintech as evidenced by the success of Alibaba and Tencent.

Alipay led the success of the wallet and payments businesses in China. India followed suit with players such as Paytm and PhonePe, along with Government-backed mechanisms such as UPI, leveraging the general consumer’s preference for transacting over the internet, particularly through the smartphone. The emergence of alternate digital currencies (cryptocurrencies) and exchanges has further fuelled the innovation trajectory in the digital finance domain. In 2020, COVID-19 acted as an accelerant to many of these emerging fintech trends. Newer models emerged in lending and banking, including BNPL (Buy Now Pay Later) and neo banking, to move fintech to the next level of innovation.

However, with the exuberance comes to the inevitable excesses and these excesses have been exposed this year. A much-needed adjustment has been brought about to the overall fintech ecosystem.

The purge

The world has been in the midst of a 14-year liquidity binge post the GFC. Every binge inevitably leads to a hangover. Fintech as a sector was also a direct beneficiary of this abundant liquidity in the global financial system. These fintech businesses were seeing their valuations getting inflated on the back of benign liquidity conditions. As the liquidity tap has turned, it has become apparent that many of these businesses were on shaky foundations with sub-optimal business models and cannot continue to function in their current form. We are now seeing significant corrections in valuations.

In 2022, European fintech player Klarna raised USD 6.7 billion USD 800 million at a valuation of USD 6.7
billion, significantly lower than the USD 46 billion valuation that it had touched in June 2021. Likewise, Stripe, the payment processing platform, saw its valuation drop by 64% since its previously marked price. Similarly, shares in publicly listed Affirm, a BNPL player, fell by more than 80% in 2022.

New-age fintech start-ups are now set to compete with large tech behemoths such as Apple and Amazon. The industry is now seeing strategic initiatives, such as Goldman Sachs creating a D2C platform – Marcus, for digital consumer banking. Some of these moves seem to be challenging the traditional take-deposit-give loan model of banking. Amazon for instance is working actively to unbundle traditional banking products and the company remains very focused on building financial services products that support its core strategic goal: increasing participation in the Amazon ecosystem.

Real & significant opportunity in fintech

Businesses need to differentiate through a unique advantage. It is imperative that businesses are focussed on thinking about what is it that truly differentiates them and how durable is the differentiation. Currently, many segments within the fintech ecosystem especially in India have multiple businesses with little or no differentiation. This is undesirable and needs correction.

The future will be about smart AI and further innovations in products/services and customer experiences including hyper-personalization. Voice payments, an AI-powered tool, is likely to be a notable innovation. The Voice Payments Report in 2017 predicted that 31% of US adults would adopt voice payments in 2022, a big jump from 8% then. Three significant factors will reportedly fuel the growth: proliferation of voice-enabled devices, technological improvements in AI, and robust solutions for voice payments. Many financial institutions, payment providers, and fintech players in the US, including Capital One Corporation, PayPal, Amazon, Apple, and Google are actively pursuing the creation or inclusion of voice payment technologies in their offerings.

While the jury may be out on the fate of the crypto ecosystem, it’s base technology – Blockchain, still holds promise. Blockchain technology still has the capacity to bring about newer innovations that will have powerful use cases and applications.

It will also be interesting to see how social media-hosted payment platforms perform. Most interesting would be the way forward for Twitter — after its acquisition by the maverick billionaire Elon Musk. Many observers, including us, would not be surprised if Twitter emerges as a significant fintech player with an embedded payments layer.

The global fintech sector could be entering a period of a renaissance after the adjustments brought about by the shifting global macro environment. While longer-term opportunities from the sector will continue to be present, investors will need to be very discerning and those who will deploy capital prudently from here on will end up delivering outsized returns over time.

The post Fintech: The game changer appeared first on International Finance.

Particularly younger people prefer using this payment method over credit cards. The report stated that nearly 60% of consumers are using this payment method.

PYMNTS’ survey respondents provided several explanations for their preferences. According to respondents, ‘Buy Now, Pay Later’ payments are easier to manage than credit card repayments, there is a simple approval process, and ‘Buy Now, Pay Later’ options do not carry interest if the debt is paid back on time.

According to Insider Intelligence, this preference is fueling a surge in ‘Buy Now, Pay Later’ services. The Consumer Financial Protection Bureau (CFPB), which has plans to regulate ‘Buy Now, Pay Later’ corporations similarly to how it regulates credit card companies, has expanded regulation of these services.

However, a large number of new businesses have emerged to provide ‘Buy Now, Pay Later’ services, and by the end of 2022, the value of the sector is anticipated to exceed USD 76.20 billion in US payments volume.

Consumers Should Be Cautious
The growing accessibility of ‘Buy Now, Pay Later’ services is both a blessing and a curse for consumers. According to Christine Roberts, CEO of Citizens Pay, a ‘Buy Now, Pay Later’ service provided by Citizens Bank, many younger customers are drawn to such services since they saw their parents suffer from credit card debt during the 2008 financial crisis and many perceive ‘Buy Now, Pay Later’ services as a “safer” alternative.

This might be accurate in some circumstances. Numerous ‘Buy Now, Pay Later’ services automatically verify your payment information and plan out your next payments. This means you won’t need to keep track of when to pay back your purchases. You typically won’t pay interest on your debt if these payments are completed on schedule.

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