Apple Inc (NASDAQ:AAPL)
Apple has always been one step ahead of the competition when it comes to innovation, as the company is consistently working to advance its products and provide people with brand-new functionalities. Apple has recently introduced its newest service, dubbed ‘Pay Later,’ which provides Apple customers with the ability to make purchases immediately but defer payment until a later date. This action has created quite a commotion in the world of finance, as evidenced by the huge drop in the price of Affirm’s shares. This new payment option will be examined in great detail throughout this piece, as will the ways in which both Apple customers and Affirm investors are impacted by its introduction.
On Tuesday, Apple (NASDAQ:AAPL) made the highly-anticipated announcement that it will be entering the “buy now, pay later” market with the introduction of Apple Pay Later.
Customers will not be charged interest or fees for using the new service, which will enable them to split the cost of Apple Pay purchases made through the Apple Wallet app on their iPhones and iPads into four equal payments that may be made over a period of six weeks. Apple (NASDAQ:AAPL) announced on Tuesday that it is inviting a limited number of users to access the service, with plans to make it available to all users who are eligible in the coming months.
According to Apple, customers can apply for a loan through Apple Wallet for any amount between $50 and $1,000 to use with Apple Pay Later, and the application won’t have any influence on their credit score. Before a user applies for a loan, the company performs what is called a “soft credit pull,” which helps to ensure that the user is in a healthy financial situation.
Once accepted, the user will have the option to make purchases using Apple Pay Later. While making a purchase using Apple Pay, customers also have the option to submit an application for a loan during the checkout process.
Apple Finance, a division that will manage credit evaluation and lending, one that provides this service to customers. Apple has stated that it will begin reporting Apple Pay Later loans to credit bureaus in the United States beginning this fall.
The service is made available to users by way of the Mastercard MA +0.07% Installment program; hence, retailers are not required to take any action in order to make Apple Pay Later available to their customers. The Mastercard payment certificate that is utilized to finalize the transactions and acquire items is issued by Goldman Sachs (GS -0.06%).
How Does This Impact Affirm?
The announcement made by Apple is putting pressure on the stock of Affirm Holdings (NASDAQ:AFRM), a company that specializes in providing financing for “buy now, pay later” transactions.
In a brief research note, the analyst at Mizuho, Dan Dolev, stated that the news had been widely anticipated and that it ought to already be discounted in Apple share prices. Dolev has not changed his opinion on Affirm shares from Buy to Neutral.
“Overall, although the knee-jerk reaction is natural, Apple’s decision may only further reinforce the BNPL category as genuine,” he adds. “Overall, it’s possible that the BNPL category is legitimate.” “Buy.”
A substantial impact has been caused on Affirm’s shares as a result of the debut of Apple’s ‘Pay Later’ program, which has resulted in a steep decline in the value of those shares. Apple is in the business of providing a service that is analogous to Affirm’s buy-now-pay-later model, and as a result, investors are beginning to question Affirm’s potential for continued expansion in the future. Nonetheless, Max Levchin, the CEO of Affirm, continues to express optimism regarding the future of the company and has stated that their service provides greater adaptability and customization than Apple does.
In a statement, Affirm stated that the introduction of Apple into the market would be beneficial for the particular category. According to the firm, “More transparent and flexible payment solutions that can displace credit cards are excellent for consumers – particularly when they do not have any late or hidden costs.” “For the past ten years, Affirm has been providing this service by way of individualized payment plans with term lengths ranging from six weeks to sixty months. We not only give customers more power but also assist business owners in expanding their operations by underwriting each and every transaction. The prize money is still substantial, and Affirm is in an excellent position to win.
The price of Affirm shares dropped 8.5% to $9.35. Apple’s stock price dropped by 1% to $156.62 per share.
What Does This Mean for Affirm Investors?
The introduction of Apple’s ‘Pay Later’ program is unquestionably something that should give investors in Affirm pause. The presence of Apple as a competitor may have an adverse effect on both the growth and profitability of Affirm, which would ultimately result in a drop in the stock value of the company. Affirm, on the other hand, provides a one-of-a-kind service that has significantly more adaptability and personalization options than Apple does, which may be appealing to a subset of Apple’s customer base.
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