Buy now, pay later industry has seen progressive ‘soft checks on people’s credit’: Analyst

Macquarie U.S. Lifestyle & Payments Analyst Paul Golding breaks down Apple’s decision to break into the buy now, pay later industry and details the regulatory implications of tech companies venturing into credit and BNPL services.

Video Transcript


SEANA SMITH: Apple is shaking up the buy now, pay later industry, unveiling its long-awaited plans to enter the space earlier this week. And that was enough to send a firm and PayPal shares lower both initially taking a hit on that news. Paul Golding, Macquarie US Lifestyle and Payments analyst, is here with us to talk about the impact of Apple entering the space. And we also have Yahoo Finance tech reporter Dan Howley joining the conversation.

It's great to see you here, Paul. Let's talk about apple now in the buy now, pay later space. What does that mean for some of its competitors within that industry?

PAUL GOLDING: Well, thanks for having me on, first off. What I would say is that the wallet innate nature of iOS of having the apple wallet on there, and this product being managed through that interface, does overcome some of the onboarding or customer acquisition hurdle that you might see with other platforms, where an app has to be downloaded. But this is, in a sense, a standalone product aside from all the credentials that you keep in your Apple Wallet and your Apple Wallet balance to the extent that you use it.

And so in our view, while the onboarding may have fewer hurdles, some of the other competing products, which is the context through which we view this, our coverage of [? Block, ?] for example, and Cash app, Cash app has, in our view, much more breadth to its product lineup. And to that extent, it can not only attract but also retain customers in our view around its ecosystem and drive BNPL through that.

DAN HOWLEY: Paul, this is Dan. Is there a risk for Apple here, just knowing that, you know, they're being looked at by different regulators around the world as far as antitrust , goes as far as their control of their platform? This is going to be essentially built-in to iOS to a degree. I mean, is that a boon for them as well as a problem?

PAUL GOLDING: Well, we don't cover Apple, we cover the payments names. And so I can't speak to the risk specifically to Apple. What I can comment to is something that we wrote about in the context of our coverage of buy now, pay later across the block. And PayPal has pay in for as well.

And the commentary from the Consumer Financial Protection Bureau has been that big tech's entry into this product lineup in this product category could lead to some anti-competitive practices. Of course, we're not attorneys to say either way. But that's some of the press that we've seen come out around BNPL. And specifically, since this product launched, the other piece of it is the extent to which consumer data is continuing to build through an expansion of product verticals that are aggregated by big tech.

And so we have to see the extent to which regulators look at BNPL, BNPL's expansion, and BNPL going upmarket in terms of company size and scale that's offering it to see what potential regulatory implications this drives on the back end.

SEANA SMITH: And Paul, to that regulation point, our DC reporter Jen Schonberger, she spoke with Rohit Chopra, the CFPB Director, earlier today, asked him exactly about That let's play a quick clip. And then I want to get your reaction on the other side.

ROHIT CHOPRA: We're hearing lots of stories and seeing some data, where consumers are getting in over their head. The existing credit card regulation helps protect against some of this. There's some checks on your ability to pay. There's some credit reporting that helps make sure that things are accurate and above board. There's dispute rights. So we've started the process to figure out how can we make sure that buy now, pay later has those similar types of protections.

SEANA SMITH: And so, Paul, some of the similar, I guess, issues or concerns raised there. What do you think when we talk about a potential timeline for this? Any idea about what that could potentially look like?

PAUL GOLDING: No sense at the moment from our side. And again, can't speak to the implications for Apple, as we don't cover it. But in looking at our other BNPL coverage, we've been hearing similar discussion points for quite a while and have not seen material action yet from a regulatory perspective, at least in the US. What I will say is that we have seen progressive industry-wide move towards soft checks on people's credit when they apply for a BNPL loan or installment plan.

And so that's soft check, to some extent, should check some boxes around appropriateness and credit worthiness and other areas that might be of interest to a regulator or lender.

DAN HOWLEY: So Paul, just, you know, looking at kind of the competitors in the space that the folks that are already ingrained, right? You know, you would you would imagine that they would suffer, just because Apple is such a big name. And I mean, Apple Pay, for instance, has picked up as far as usage goes. So it's not as though this is some kind of foreign device to people. I guess for the incumbents in the space, does that allow them plenty of space to still grow in the US, specifically? Just because so many people are already using iPhones, you know, that makes it a lot easier. Does-- is there still enough room for the others to grow? Or is it more now an international game for them?

PAUL GOLDING: No, we think there's still domestic room to grow, specifically in the BNPL category and overall for their ecosystems. In our view, as I was mentioning before, it's the multiple offerings within an ecosystem that makes them compelling. And then BNPL helps support some of that consumption as well to the extent that it allows easier payback setup or allows for larger basket size maybe, if the consumer would like to make a higher-end purchase or a larger purchase. And it's already within that ecosystem.

So for example, if we look at a Cash app interface, and we have a discover tab, and there's a purchase that you'd like to effectuate, because you were-- you potentially received a promotion for a particular product or service, the BNPL functionality is right there within that ecosystem and that interface for you. And so as the multiplicity of product offerings grows in these ecosystems, same goes for PayPal and for Venmo, there is the potential for the existing ecosystems BNPL offerings to become more embedded in how consumers use that ecosystem. So that's a domestic and international opportunity in our view.

SEANA SMITH: Paul Golding, we really appreciate you taking the time. And thanks so much for joining us. Have a good weekend.