The big news this week that is rocking the Afterpay Ltd (ASX: APT) share price and the Zip Co Ltd (ASX: Z1P) share price is that Apple is reportedly planning to enter the buy now pay later (BNPL) market.
Over the last two trading sessions, these two BNPL shares have lost 11.5% and 16% of their value, respectively. That's over $4 billion collectively wiped from their market capitalisations in less than 48 hours.
Why is Apple entering the BNPL market?
According to Bloomberg, Apple is interested in entering the BNPL market to help drive Apple Pay adoption and convince more iPhone users to pay for items using their phone instead of traditional debit or credit cards.
As Apple receives a slice of transactions made with Apple Pay, if the tech behemoth can achieve this, it would be another boost for its US$50 billion per year services business.
The new Apple Pay Later service is understood to have two options for consumers to choose from when paying in store and online. These are known internally as Apple Pay in 4 and Apple Pay Monthly Instalments.
As the name implies, Apple Pay in 4 will allow consumers to pay across four interest-free payments made every two weeks. Whereas Apple Pay Monthly Instalments will allow users to pay across several months with interest. Investment bank Goldman Sachs is reportedly the lender for the instalment loans.
Also weighing on the Afterpay share price and Zip share price yesterday was news that PayPal is removing late fees for its BNPL service. Competition certainly is heating up in the space!
How did brokers react?
Analysts at Macquarie were quick to react to the news of intensifying competition in the BNPL market.
In response, the broker has retained its outperform rating on Afterpay's shares but trimmed its price target down by 7% to $130.00. This compares to the current Afterpay share price of $104.79. The broker suspects there will be a period of industry consolidation before a stronger outlook emerges.
Over at Citi, its analysts believe the bigger threat to Afterpay and Zip comes from PayPal. Though, it sees Afterpay as better positioned to fend off the increasing competition.
It commented: "We continue to see a future state where the ability to Pay-in-4 will become a commodity, and see the key to success for Afterpay and Zip being their ability to be more than a payment option and own the consumer's shopping experience."
It feels Afterpay's strong consumer engagement and usage levels are key to its success in the market. And with the Afterpay share price faring a bit better over the last couple of days, it appears as though the market agrees.
