Apple and JPMorgan turn to Pay Now Grow Later

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Consumer payments-focused startups Klarna Bank AB, Afterpay Ltd. and Affirm Holdings managed to change the way people buy and grow rapidly until recently. Now much bigger players seem to be gearing up to stream the little guys.

Apple Inc. launched an installment payment feature on Monday among a series of product updates. It’s a great example, with JPMorgan Chase & Co., of big tech and financial incumbents turning their attention and investments to areas that start-ups have made their own.

Big corporations are stepping up the pressure just as slowing economies threaten consumer spending and regulators are focusing on fintech. Klarna, for its part, is tightening loan terms and cutting staff to focus on profitability in response. Buy Now Pay Later turns into Pay Now Grow Later. This doesn’t just apply to startups: Previous consumer credit cycles show that companies that can keep investing through tough times often come out on top after the storm.

Apple Pay Later is part of the tech giant’s effort to create and self-control more products and financial capabilities after years of relying primarily on third parties. The goal is to make money from fees, of course, but also to capture more data on buying and spending habits that will help it market more services to customers.

Part of the story of JPMorgan’s massive technology spending is similar: rebuilding its IT systems and investing billions in the payments side of its business are strategies to help the bank better capture, analyze and use all data generated by customers.

For Buy Now Pay Later businesses, higher costs also arise in the form of expected UK-led regulation to ensure these products are properly treated as a burdensome form of lending. people’s debt. Large banks that are aware of these products are already bearing these regulatory costs and the marginal increase in their expenses will not be large, while large tech companies have much larger revenue bases that can absorb more fixed costs without too much erode profits.

Small businesses will also be more affected by the cost of problem loans if the economic downturn worsens. This all contributes to the expectation that Klarna’s ongoing fundraising will potentially value it at a third less than the $46 billion it made in its fundraising a year ago. That wouldn’t be surprising, according to Bloomberg Intelligence; Shares of large, publicly traded fintechs like PayPal Holdings Inc. and Block Inc, which bought Australia’s Afterpay in a blockbuster deal last year, have fallen more than 50% in the past six months . Affirm Holdings is down 81%.

Of course, the big banks and credit card companies will also suffer credit losses, but with a larger customer base and more seasoned debts, the pain should be much less.

It may still seem counterintuitive to invest in growth efforts during a downturn, but it has been done before. There is a classic UK case in consumer credit: when growth slowed and interest rates soared to 12.5% ​​in Britain in the early 1990s, Barclaycard invested heavily in a long-running publicity blitz starring comedian Rowan Atkinson (Mr. Bean and Blackadder) as a secret agent.

The bank needed to keep borrowers engaged and explain why its annual reassessment and benefits like purchase assurance or international bailout were worth having. By the time the economy recovered later in the decade, Barclaycard had increased its market share and revenue. The brand of its main rival, Access, was then shut down by the rival banks that ran it.

Don’t be surprised to see big brands like Apple and JPMorgan increasing their ad spend on these types of products over the next few years. It’s no guarantee of success, but when economies kick back into high gear, those who can afford to pay customer attention now will have a better chance of growing later.

More from Bloomberg Opinion:

• Even a soft landing can be ugly for investors: John Authers

• Wordle, BeReal and even Facebook: applications become less addictive: Parmy Olson

• Jamie Dimon’s next act? Wall Street’s Great Tech Mogul: Paul J. Davies

(Fixes to day of Apple product announcement.)

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

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