MoffettNathanson Partner Lisa Ellis joins Yahoo Finance Live to discuss Apple's new buy now, pay later service and whether it could disrupt existing payment platforms.
BRAD SMITH: Apple announced their own buy now, pay later method. It is being received quite well for Apple, at least-- well, at least flat to the upside, but for some of the other payment apps, not so good. For more on how this will impact other payment stocks like Affirm and PayPal, we've got Lisa Ellis, who is the MoffettNathanson partner, joining us here this morning. All right, first and foremost, just want to get your reaction to the announcement. I mean, clearly, some of the existing BNPL companies trading lower on this. What type of business, what type of behemoth can Apple be in this category?
LISA ELLIS: I guess we'd say it's probably not a big deal to have Apple announce this product at this point. I mean, they-- it was sort of pre-announced already almost a year ago and is very much a "me, too" offering, nothing differentiated about it. Very similar to the offering that PayPal has had in market for now almost two years, that American Express has had in market. Kind of a generic pay-in-four style of financing.
But on the other hand, it's definitely another indicator of the commoditization in this space. And so it's not surprising that you'd see pressure on the standalone names, particularly a player like Affirm, you know, Klarna as well, although they're still private, that are trying to make a standalone business off of BNPL. BNPL is really more of like a feature, a financing feature, so a bit tough over the long-term to have a sort of standalone business anchored around just that one product.
BRIAN SOZZI: Lisa, hang with me on this one for a second. If you are an Amazon, now you have this key deal with the likes of an Affirm, and you see Apple making a bigger push into buy now, pay later, why not, if you're Amazon, make a play for Affirm?
LISA ELLIS: Uh, well, they could, I suppose. The challenge you'd have there, there would be a lot of-- so we certainly think Affirm is an attractive target for many players, let me just say that. I guess I wouldn't have put Amazon at the top of the list, mainly because of the dis-synergy. Affirm has a really good real estate on a lot of merchant websites. They're one of the most highly adopted. I think the last time we looked at it, it's about 10% or so of US e-retailers have Affirm as an option on the websites, which is pretty high, actually, for a player like this that's fairly nascent.
And the challenge is that most of those retailers would view Amazon as a competitor and certainly wouldn't want Amazon getting access to any sort of data about what consumers are buying on their website. And so, the minute that type of deal would be announced, you'd see all of that-- a huge swath of those existing Affirm merchant customers, you know, dumping Affirm. So that's probably unlikely, like, being just because of that dis-synergy.
But there's many other players. I don't know what-- it's more probably about Affirm's interest or willingness to partner, be acquired by somebody else because anyone from American Express to PayPal to any of-- a Capital One, like the traditional card issuers, I mean, it's a great product with a great consumer base, a great merchant base. It's just a very niche product that might be better served as part of a broader offering.
JULIE HYMAN: Hey, Lisa, it's Julie here. It's also a bargain right now, at least if you look at it relative to where it was a year ago. I mean, the thing has tumbled, and we've seen a lot of trouble, more broadly, in the buy now, pay later space. Even though Klarna is private, we've heard rumblings about its valuation, right, and its growth. What happens to these companies in a slowing economic environment?
LISA ELLIS: Uh, yeah, look, on one hand, you'd say, there's no question consumers really like this type of offering. They've gained more traction in the last five or six years than I think probably anyone anticipated upfront. There's sort of a modern day version of that private label-- you know, merchant private label card, you know, that Nordstrom card or Bloomingdale's card that you've got and loved back in your 20s. It's very akin to that, these types of models. They're very popular.
But right now, they're definitely in for a tough go, not just partly because of macro. Inflation hits middle income consumers very hard. And that's the core customer for these offerings, is that sort of middle income consumer. In addition, there's some regulatory pressure on this space. The CFPB is starting to look at it and want to put some guardrails around how these products are marketed to consumers to make sure that they know that they're signing up for a loan when they sign up for them.
And then there's also just basic pricing pressure. I mean, right? An obvious aspect of the Apple Pay Later offering similar to the PayPal offering is that they're being offered at no additional charge to the merchant, whereas a Klarna and an Affirm and an Afterpay actually upcharge the merchant. And so, there's some pricing pressure as well. So it's going to be a bit of a rebuilding stretch here over the next probably 12 months for these standalone names.
BRIAN SOZZI: Lisa, it seems as though over the past month, Klarna has really started to fall apart. Layoff announcements, potential haircuts to valuations, a real fall from grace for that company. Do you get the sense that Affirm is picking up any business from Klarna? Are they taking employees from the company?
LISA ELLIS: Not that we've heard of. I mean, definitely, I would say-- I guess you could look at it one way. Klarna has taken, according to reports, right, has taken a 30% haircut to valuation in a down round. If I compare that, though, to what Affirm's stock has done, right, Affirm's stock has done a lot worse than that.
So the whole space is kind of getting sold off. We're not hearing about the talent going one place or another. But what we probably are starting to see is a slowdown for Klarna in the US. Klarna is a very, very strong European player. That's their core market. And they had started gaining some traction in the US. But I think we're starting to see that pull back. And Affirm is very strong in the US. So I think what we're going to see more likely over these next kind of 12 to 18 months is sort of a shakeout.
Right now, you'll go to some merchant websites, and there will be, like, three different offerings, Affirm, Afterpay, and Klarna, all there. There's BNPL sort of everywhere. And I think we'll start to see some of that shake out. I wouldn't be surprised if we see, like, a player like Klarna maybe pull back a little bit from the US market in the near term, as they're sort of regrouping in Europe, where they have a lot of traction. Europe's a very attractive market. There's a lot less use of revolving credit cards in Europe. And so, using BNPL as a form of credit for consumers is really attractive. You know, that sort of entry level credit card isn't nearly as prevalent there as it is here.
BRIAN SOZZI: Lisa Ellis, analyst at MoffettNathanson, always good to see you. Have a great rest of the week.
LISA ELLIS: Terrific. Thank you.