The buy now, pay later wave: Afterpay, Klarna, Affirm and rivals hope to take U.S. by storm


A new form of digital layaway has taken Europe by storm and gained some acceptance in the US, and the growing handful of opponents in space want to encourage more online purchases that Americans pay for over time.

‘Buy now, pay later’ options – referred to in the payments industry as BNPL – offer a twist on the concept of loose ends, enabling consumers to split purchases into installments and pay either simple interest or no interest at all. do not ask, in a break from the traditional credit model with which interest can be compounded. Unlike traditional cleanup, consumers get instant access to their purchases while paying off.

Furniture companies have long made people pay in large quantities for items with large tickets while taking the product home immediately, but now the concept has gone online, spread across industries and in smaller purchase amounts, noted David Scharf, analyst at JMP Securities. Those who want to build flashy home gyms during the pandemic could face the cost of a $ 1,800 plus Peloton Interactive Inc.
bike to 39 interest-free monthly payments of $ 49 with the help of Affirm Holdings Inc.
A slew of other players have rushed their claims elsewhere in the U.S. retail market.

The services are gaining increasing acceptance, driven by the increasing acceptance of merchants, a tremendous boom in e-commerce, and what many providers are saying is a skepticism among younger buyers about the traditional credit offering. Although BNPL services accounted for only 2% of US e-commerce payments last year, according to FIS Global, they are rapidly gaining in popularity. The value of purchases made with BNPL offers increased by 132% in the first quarter, according to data from

BNPL services are more overseas, representing more than 7% of European e-commerce transactions by 2020 and 10% of Australian transactions, according to FIS Global. In Sweden, home to BNPL provider Klarna, installments accounted for 23% of e-commerce transactions last year.

The installment wave has piqued the interest of established giants like Visa Inc.
and PayPal Holdings Inc.
as well as a myriad of new fintech players who have chosen different paths as they seek to place their advances in the burgeoning U.S. market.

The trend is of increasing relevance to investors. The American startup Affirm recently became known, while the Afterpay Ltd. in Australia
trading in its home country is considering taking a US listing, given the growing importance of the US market for its business. The Swedish Klarna is considering a stock exchange in the UK, according to Bloomberg, although its CEO has expressed concern about possible regulations.

In the credit card model, merchants pay transaction fees when they accept card payments and consumers pay accrued interest when they carry a balance. BNPL services, which can sometimes be interest-free for the consumer, charge retailers who are increasingly willing to pay for the services a larger fee, so that consumers will be more likely to make an online purchase.

BNPL is in the midst of a number of attractive operating trends, according to John Hecht, an analyst at Jefferies, which sees a total $ 600 billion transaction opportunity for the US industry, based on the value of e-commerce purchases outside Inc. .
He expects the services to take a bite out of what he sees as a total $ 840 billion dollar market for fintech-enabled credit products.

Although BNPL offers are structured differently than traditional credit, they are not without risk. The different BNPL businesses have different policies on missed payments, but some will charge late fees or report to the credit bureau on the failures to meet payment obligations. The industry is largely unregulated and there are concerns that consumers may incur more installment obligations than they can afford to repay within the allotted time frames, especially in a credit crunch.

The companies have different approaches to the US as they try to build or expand their BNPL businesses. MarketWatch spoke to executives at some of the leading offerings to find out about their strategies for the market.


While Peloton is Affirm’s largest customer, the BNPL business has expanded its brand mix, doubling from a year earlier in the most recent quarter to nearly 12,000 retailers.

One step in diversifying the business’ trading base is a recent agreement with Shopify Inc.
it makes it easy for e-commerce merchants to enable Affirm’s installment offers. In return, Shopify acquired a stake in Affirm.

“Because of the nature of the relationship, they have all the incentives in the world to make sure it is successful,” said CFO Michael Linford. He expects the deal to ‘add significantly more value to us than we had to give up’, as Shopify’s large trading base is ‘very difficult, if not impossible’.

Affirm offers a mix of simple interest and interest-free installment options, and Linford said the company is particularly differentiated in its high-value purchasing business, as its technology and risk management capabilities enable it to create ‘a lot of value for traders’. . Affirm’s endorsement determines which customers can pay their installments on big card items.

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