BNPL (Buy Now Pay Later) Options Gain Payments Market Share

Consumers who want to conserve their cash for a few months are making use of a new checkout option. Companies like Affirm that enable short-term installment purchases for consumers to use at the point of sale, have partnered with both online and in-store retailers. These partnerships provide customers the ability to make credit-style purchases without the need for a credit card. This new checkout option is known as “Buy Now Pay Later” (BNPL).

Typically, consumers are enabled to pay for their purchases in four equal monthly installments. In many cases there are no interest fees charged, but interest is generally charged on plans that go beyond four months. Late fees can be very substantial (and consumers who run late in payments may be blocked from further BNPL purchases until they catch up). Retailers, on the other hand, pay a percentage of the total sale as a fee to the BNPL platform. In general, retailers are motivated to participate, because many see significant increases in the level of sales to their online customers.

Leaders in the payments space, such as PayPal and Block (the parent company of Square), have made sizable investments in BNPL companies. Block acquired the Australian BNPL provider Afterpay for $29 billion. PayPal snapped up Japanese BNPL provider Paidy for $2.1 billion. Growth in BNPL usage has risen substantially in recent years. However, many of the platforms have had difficulty in achieving significant profits, particularly in times of rising interest rates, which increase operating costs. Unfortunately, some consumers have overextended themselves using BNPL, while others, including some shoppers at Walmart, have been known to utilize BNPL to pay for everyday needs such as groceries—clearly not an effective way to run a household necessities budget.

BNPL has not been a smooth route to profits for all FinTech firms. High consumer default rates can lead to huge losses at BNPL companies. In June 2024, Apple, operator of the hugely successful Apple Pay digital wallet, announced that it will no longer operate its own BNPL system. Apple has the possibility of working with third-party BNPL providers if it wants to include such payment options in its digital wallet. Meanwhile, in the U.S., the powerful, federal-level Consumer Financial Protection Bureau (CFPB) announced in 2024 that it will up its regulation of BNPL activities and will regulate BNPL companies in manner similar to the way that it regulates credit card providers.

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BNPL (Buy Now Pay Later) Options Gain Payments Market Share, Business and Industry Trends Analysis

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