The Evolution of Buy Now, Pay Later


Since the dawn of shopping (or, as early as the 1840s), deferred payment has been a compelling concept. Splitting large purchases into small installments is as attractive to the cash-strapped buyer as it is to the seller looking for customers of all sizes.

“Buy now, pay later,” as we know it today, likely started with department stores like Nordstrom issuing private label credit cards in the 80s and 90s, and over the last decade, BNPL has become its own market.

“Retailers loved it back then because it gave them visibility into purchases and customer history… it was like a de facto loyalty card. But dealing with the financial side has always been tough, ”Nikki Baird, vice president of retail innovation at Aptos, told Retail Brew. Enter: BNPL Fintech startups.

  • Affirm was one of the first to embrace the space, around 2012, followed by Afterpay two years later.
  • After 10 years of activity in Europe, Klarna introduced its services in the United States in 2015. Sezzle was founded the following year.

It is now: These not quite credit services, after the 2008 financial crisis, became more popular in 2021. Baird attributes this to the “uncertainty” of the Covid era, with people being laid off from their jobs or fearing another disaster. Consumers want the ability to hedge and keep their money, just in case.

  • BNPL’s spending in the United States has increased 230% since 2020, according to a September report from Accenture (commissioned by Afterpay). It is estimated at around $ 226 billion this year, according to a report from Juniper Research.
  • PayPal claimed BNPL’s volumes increased 400% for Black Friday alone.

“Fundamental changes are taking place in the way consumers shop, pay and bank. The pandemic has accelerated online shopping and demand for BNPL services, and legacy banking and credit card systems have not kept pace, ”said David Sykes, Klarna manager for North America. .

VCs and traders open their portfolios for a piece of the pie. This year alone, Klarna raised $ 1 billion in March, plus an additional $ 639 million in June, which valued it at $ 46 billion. Meanwhile, Afterpay was bought by Square (now Block) for $ 29 billion, and PayPal bought Paidy, a Japanese BNPL platform, for $ 2.7 billion. Affirm has also gone public.

Traders, too, board the BNPL train in droves. Klarna now works with 250,000 global retailers, including Macy’s, Sephora and Under Armor. Afterpay’s list includes Nordstrom, Lululemon, Urban Outfitters, and even Amazon.

  • Speaking of the tech giant, Amazon recently partnered with Barclays to roll out an installment plan service in the UK. (He also partnered with Affirm this year.)

“What buying now, paying later is that it takes all the financial risk off the retailer… and it allows them to outsource it,” Baird said. “The fees that they ended up paying to buy now, pay the company later, to work with them, are totally offset by the volume they receive from consumers who might not have done this. kind of bigger expenses at the same time. , but is more than happy to split that into three or four payments. “

  • Merchant fees per BNPL transaction can range from 1.5% to 7%, the Kansas City Fed noted.

It is also an added value: BNPL’s offer increases personal conversion rates by 20 to 30%, according to estimates by RBC Capital Markets. Ticket sizes, on average, are increasing by 30-50%.

“From a merchant perspective, they are looking for new ways to attract a younger audience and a different audience,” Afterpay North America general manager Zahir Khoja told Retail Brew, “but also a larger basket size of a demographic that they may not have attracted in the past.

Start them young: Afterpay and its fintech cohorts are counting on Gen Z and the wider shift to electronic communications to drive their business and the space in general. “The young buyer in particular shows an aversion to what I would call expensive credit, interest and excessive fees,” Khoja said. “It lets you use that as a budgeting tool that doesn’t stop you from buying things. From the consumer’s point of view, it fits very well into the lifestyle [of] the new generation. And it’s in a digital format that makes sense to them.

According to a Nerdwallet study, one in five buyers, 22% of whom were Gen Z, chose BNPL as their primary payment method. Baird emphasizes the “generational credit sensitivity”. But it is possible that by choosing these purchasing methods to fight against debt, young consumers simply get into debt … more. (See this in-depth Retail Dive article.)

Among respondents loyal to Gen Z BNPL, 43% admitted to missing at least one BNPL payment last year, according to an October report from Piplsay. It could be a widespread case of eyes larger than your stomach, or in this case, wallet.

  • The Consumer Financial Protection Bureau said this month that it plans to review BNPL platforms and how they might increase debt, among other concerns.

“[There’s] the potential for backlash for consumers who walk past them, when they maybe belong to four or five different BNPL programs and find themselves in a bind, ”Baird warned. “Just because we’re seeing such a huge growth curve and upward trajectory today doesn’t mean we’re going to hold it forever. At some point, it will stabilize. It’s just the law of large numbers.

Return to store: Until then, BNPL will follow shoppers wherever they go, even at the mall. As people revert to face-to-face shopping, fintech is already rushing towards cash wrap. It will of course take work to educate consumers and implement transparent technology. But startups don’t waste time.

Afterpay, for example, has extended its service to physical stores after witnessing BNPL’s success in 2020. Come home straight away, ”Khoja said.

  • Klarna is also showing up through new partnerships with shopping center owners Simon and Macerich and thousands of brands like Bed Bath & Beyond.

“Over the past year, retailers have seen the benefit of offering BNPL on their e-commerce sites,” Baird explained. “Now they want to capitalize on these advantages in physical retail. “


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