How to buy now, how to pay later has become a 100 billion dollar industry



The Klarna logo on the screens of laptops and phones.

Jakub Porzycki | NurPhoto via Getty Images

It will take some time to buy now and pay later.

Today, millions of buyers buy now, pay later, or use the BNPL service to finance their purchases. And the options are more diverse than ever – Klarna, Affirm, and Afterpay are just a few of the many providers in this space.

Meanwhile, big business is on the move, PayPal is launching its own product, Amazon and Apple have partnered with Affirm, and Square has agreed to buy Afterpay in a $ 29 billion deal.

BNPL companies promote their services as a better alternative to credit cards. But critics fear that many people are spending more than they can afford and may not even realize they are in debt.

So what do you buy now and pay later? And why is it suddenly booming?

What is BNPL?

The BNPL plan, also known as a point-of-sale loan, allows buyers to pay for goods over a period of installments.

The concept is not new. Installment plans, called “layaways” in the United States and “layaways” in Australia, have been around for years. These deals allow people to spread the cost of items over a period of time.

BNPL is similar in that consumers prepay for their products, often interest-free and in stages.

Buyers can choose to use the BNPL service when paying online with just a few clicks. They usually pay the first installment and will be charged the remaining amount within 3-4 months.

BNPL providers often add a payment button to the retailer’s website to get a merchant transaction-by-transaction discount. According to experts, retailers are motivated to accept this. This is because the average order value is high and the conversion rate is often high.

Some BNPL companies also receive income from delinquency fees and long-term interest.

The advantage for buyers is that they can purchase more expensive items than they would normally be able to afford all at once (for example, a $ 300 jacket) and split the purchase cost into monthly installments. .

Why is it so popular?

One word: Coronavirus.

The pandemic has forced many retailers in physical stores to temporarily close, allowing consumers to spend more time at home.

This has accelerated the growth of online shopping. Last year, global e-commerce transactions totaled $ 4.6 trillion, up 19% from 2019, according to a report by payment processing company Worldpay, owned by FIS.

BNPL accounted for 2.1% of that total, or about $ 97 billion. According to Worldpay, this figure is expected to double by 2024 to reach 4.2%.

The BNPL program was already popular before the pandemic, but the market has grown significantly due to changes in consumer spending habits and the surge in e-commerce adoption.

This has benefited many companies in the field as Klarna reached a valuation of $ 46 billion in a recent private funding round, PayPal acquired Japanese company Paidy for $ 2.7 billion and Square acquired Afterpay. Brings.

What are the risks ?

One of the main criticisms of BNPL is that it can get buyers to spend more than they can afford. Postpaid plans are especially popular with Millennials and Gen Z buyers.

Which, a British consumer advocacy group? The survey found that almost a quarter of BNPL users spent more than initially expected because the service was available.

There are also concerns about the ease with which people borrow money, sometimes unnoticed, as this does not include a rigorous credit check.

This industry has often been compared to the controversial payday loans that allow short-term borrowing at high interest rates. BNPL is usually interest free, but some providers charge high late fees.

The BNPL provider declares that it has taken security measures to prevent users from abusing it. For example, Klarna sets spending limits on a case-by-case basis.

“For each transaction, we take a new position and look at how consumers use this product,” Klarna CEO Sebastian Siemiatkowski told CNBC.

“If they actively use it, we can expand our ability to use it. Otherwise, we limit our ability to use it or to use it completely. Stop the ability to do. “

But critics argue that BNPL needs regulation to adequately protect consumers. The UK government is trying to put the brakes on the industry with a variety of proposals, including the customer affordability check. Rules discussions will be announced in October.

Klarna and Clearpay, the UK’s post-payment divisions, have said they welcome the transition to regulation.



Amanda P. Whitten

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