LONDON–The growing popularity of and investment in “Buy Now Pay Later” (BNPL) solutions is drawing increasing attention, with one estimate claiming it has already diverted as much as $10 billion annually away from traditional financial institutions.
As CUToday.inf reported, Square, which owns the Cash App, announced it is buying BNPL provider Afterpay for $29 billion. In addition, Sweden's Klarna raised money in June at a nearly $46 billion valuation, and Affirm, a San Francisco company that went public earlier this year, is now valued at nearly $15 billion, according to CNN Business.
Those companies have partnered with Target, H&M, Sephora, Macy’s and others both online and in-store to offer customers the option at checkout to pay in installments.
“That lets shoppers snap up a $200 handbag for the cost of just $50 initially without having to undergo a credit check,” CNN Business reported. “The remainder is paid off in chunks over the coming months, often without interest. A firm like Afterpay covers the entire cost right away for the retailer, less fees.”
Driven By Online Shopping
While such payment plans have been around for decades, the report noted Buy Now Pay Later has boomed alongside the spike in online shopping during the pandemic, which also ushered in significant financial instability for many households.
CNN Business cited data from Adobe showing BNPL experienced 215% year-over-year growth in the first two months of 2021. Its researchers noted that more retailers are signing up — which makes sense given that consumers using the service place orders that are 18% larger than shoppers who don't, the report added.
"Trends fueling growth include digitization, rising merchant adoption, increasing repeat usage among younger consumers and an expanding set of players," McKinsey said in a report that was also cited by CNN Business.
PayPal Makes Push
As CUToday.info also reported, PayPal rolled out its own service last year. The company recently reported its BNPL product logged $1.5 billion in payments in its most recent quarter, and that more than seven-million customers have now made over 20 million transactions.
McKinsey estimates that the popularity of "buy now, pay later" options is diverting up to $10 billion in annual revenues away from banks.
A Warning for Consumers
A number of consumer groups, however, have issued warnings that people should be careful what they are signing up for.
“While many buy now, pay later companies offer zero-interest loans — tempting for those looking to avoid racking up credit card debt — a number have interest-bearing products as well,” CNN Business reminded. “Actual terms can also vary by retailer, while paying installments late may incur fees.”
CUToday.info has had extensive coverage of the growth of buy now, pay later. Search “buy now, pay later” or “BNPL” on the search engine for additional coverage.