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How BNPL is Changing the Payment Market
Buy now, pay later is a financing arrangement that allows consumers to make purchases without paying for them all at once. Several companies, including Klarna and Affirm, offer buy now and pay later financing on purchases made from participating merchants. Also, Paypal has introduced its point of sale installment loan program. In addition, some credit card issuers, such as Chase and American Express, have also set up similar financing arrangements, and many other companies are jumping into this fast-growing market.
The big players
The Buy Now Pay Later market is already crowded with various fintechs. The most notable are:
Afterpay: founded in 2015 by Anthony Eisen and Nick Molnar, the Australian fintech now has millions of global customers and tens of thousands of merchant partners using the platform globally across Australia, US, Canada, UK, and New Zealand. Afterpay allows users to split the payment into four installments, the first one due immediately, then each of the remaining three payments every two weeks. If a payment is late, you’ll be charged up to 25% of your original order amount, with a maximum fee of $8. On August 1st, 2021, Afterpay announced that the payments company Square agreed to acquire all of the issued shares in Afterpay. The transaction has an implied value of approximately US $ 29 billion.
Klarna: founded in 2005 by Niklas Adalberth, Sebastian Siemiatkowski, and Victor Jacobsson, the Swedish company has since expanded within Europe and the U.S. and boasts over 90 million active customers and 250,000 merchants across 17 countries. Klarna allows users to pay off their purchase in four equal payments; the first is due immediately, while the remaining three are paid every two weeks. Klarna does not charge interest or fees as long as you make all of your scheduled payments on time.
Affirm: founded in 2012 by Jeffrey Kaditz, Max Levchin, Nathan Gettings, the US publicly-traded company has financed over 17 million purchases. Depending on the retailer, customers can borrow up to $17,500 and pay over time with interest rates at 0%. Most loans are repaid in three, six, or 12 months without additional fees, making this the best overall choice. In August 2021, Affirm has announced a partnership with Amazon to offer online shoppers a buy-now-pay-later option that does not involve credit cards.
Paypal: the US fintech payment company recently announced the acquisition of Paidy, a Japanese buy now, pay later (BNPL) service platform, for approximately $2.7 billion, mostly in cash. The transaction completion, including the regulatory approval, is expected in the fourth quarter of 2021. Paidy is a two-sided payments service, acting as a middleman between consumers and merchants in Japan. Using machine learning, it determines the creditworthiness of a consumer related to a particular purchase, and then it underwrites those transactions in seconds, guaranteeing payments to merchants. Consumers then make deferred payments to Paidy for those goods.
On September 10th 2021, the UK digital challenger Monzo launched a new ‘buy now, pay later’ (BNPL) product called Monzo Flex, which will allow customers to split the cost of purchases into three interest-free payments with any retailer. The digital challenger bank says Monzo Flex is the ‘better way to pay later compared to existing BNPL schemes, credit cards, loans, and overdrafts, offering shoppers more flexibility and control with their borrowing. After just seven days, all-in-one card fintech Curve has become the second UK firm after Monzo to launch a buy now, pay later service called Flex. Curve received FCA approval at the beginning of the month for its version of Flex, which taps its patented ‘Go Back in Time’ technology to let customers convert almost any purchase made on any card linked to the Curve platform in the past 12-months into an installment plan. Lastly, the multi-channel commerce platform Shopify is entering the sphere of BNPL providers. The companies said the Shopify BNPL product, which is entering a testing phase, will be called Shop Pay Installment and will be provided thanks to a partnership with Affirm.
The popularity of BNPL solutions is rapidly increasing as more and more players are starting to offer this solution. Kaleido Intelligence, a fintech research data provider, has found that $680 billion will be spent by global consumers using Buy Now Pay Later over eCommerce channels in 2025. This represents a 92% rise over the $353 billion spent in 2019.
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The Banq team