Consolidation in the wings as BNPL warms up


Australia | 10:27 a.m.

Competition is intense among BNPL operators, leading to the prospect of the industry fighting for leadership ahead of a timely consolidation

-Apple Pay Later could potentially increase the size of the BNPL market
-The main impact can be felt by the smaller participants in the BNPL industry
-PayPal may be the biggest threat to established BNPL options

By Eva Brocklehurst

The BNPL sector has ridden a wave of popularity, but there are signs it will be a hectic trip to shore. The competition is intense and will become more so. This leads to the prospect that the industry may struggle for direction before a period of consolidation.

The trend towards installment payments has been validated and Citi looks forward to a future period when the ability to pay in this manner becomes a commodity. First listed operators After payment ((APT)) and Zip Company ((Z1P)) will succeed by taking ownership of consumers’ shopping experience through their apps and website.

Increased competition should also drive adoption of BNPL forward, Jarden says. The market appears to view the recently announced Apple Pay Later outlook as negative for major traders, based on their stock price reaction the broker instead wonders if this is positive as Apple may increase the size of the market . .

The broker believes that competitive advantage and a concerted drive to establish economies of scale should bode well for Afterpay, less for Zip Co, and possibly negatively for Sezzle ((SZL)). Sezzle recently secured a three-year contract with Target Corp in the United States, adding to its retail base.

Given Apple’s size and scale, Citi agrees that Afterpay will be in a comparatively stronger position than Zip, although it will need to continue to invest and innovate to keep the consumer interest.

There’s Zip Co’s Afterpay, QuadPay and now there’s Apple Pay Later. Apple is partnering with Golden Sachs to launch the service, which is a short-term loan option and a bi-weekly payment. This opens the BNPL functions to credit cards available on Apple Pay.

This is another consumer-side offer that does not compete directly with Afterpay or Zip Co on the merchant side. As currently understood, Apple Pay Later must be linked to a credit card and, as Macquarie assesses, is more of a direct competitor of Separate it ((SPT)) than other BNPL products.

Splitit generates revenue through transaction fees, paid by the retailer when a customer uses the option of paying through an existing credit card online or in store. There are no late fees.

While Apple Pay Later refunds are limited to credit cards, the potential impact on Afterpay and QuadPay is limited, according to Citi, as around 90% of Afterpay transactions use a debit card.

On the other hand, it is a bigger threat than the offers of banks and credit companies, such as Commonwealth Bank‘s ((CBA)) Step Pay because Apple Pay has a broad consumer reach, with Citi noting that there are 43.9 million users in the United States.

The main threat appears to be the in-store adoption of Afterpay and QuadPay, given that the customer experience of using Apple Pay on a mobile website or in-store is also superior.. In the case of QuadPay, UBS says Step Pay, along with others of a similar nature, is indeed a threat.

Jarden expects the impact to be felt by the smaller participants in the BNPL industry, as the larger players have more engaged users and a more developed ecosystem. In the case of Afterpay, there are loyalty, promotions, and better loan options for loyal customers.

Fees vs. no late fees

The main competitive threat to the two established BNPL options comes from PayPal, says Citi. PayPal has activated its Pay in 4 in Australia, offering no late fees.

Macquarie suspects this is a good way to encourage adoption of the product over other offerings, most of which include simply lower merchant fees. Afterpay and PayPal, in the case of missed payments, would suspend users’ accounts while recovering missed payments differently.

Afterpay would send texts and emails but eventually write off the bad debt while PayPal defer to a third party debt collector. The real impact on consumers of either of these choices remains to be seen, Macquarie points out.

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