Nearly unknown to the vast majority of U.S. customers as recently as five years ago, buy now, pay later (BNPL) offerings are exploding this summer as up-and-comers and well-established firms are racing to get their variation of installment payments in front of consumers as an alternative approach to paying with credit.
PYMNTS research shows consumers want BNPL and will favor the merchants that offer it. The most recent edition of PYMNTS Buy Now, Pay Later Tracker found 48 percent of BNPL users will not buy from a merchant if they don’t offer them a buy now, pay later option.
It is one of many impressive stats uncovered by the data — 11 percent of millennials reported using a BNPL product as of last September, 39 percent of millennial consumers who don’t use BNPL at present report they would like to be able to via their digital wallets and 37 percent report they value using BNPL because they believe it keeps their data more secure.
But the most impressive stat reflected in the report, Afterpay General Manager of North America Zahir Khoja noted in a recent conversation, is the fall in credit card usage among younger consumers. Some 21 percent of millennial consumers didn’t own credit cards in 2021, up sharply from the 14 percent who didn’t have them the year before.
“They’re starting to say, ‘We want to use debit and our own money,’ but they still want the flexibility of being able to pay over time, which I think is afforded by buy now, pay later,” Khoja said.
The challenge in an increasingly crowded field of BNPL players is to be the brand consumers view as giving them what they want. Which means the temperature isn’t the only thing heating up this summer, as the mercury on the race to be the BNPL firm to rule them all is quickly rising.
Amazon Pay’s Growing Installments Interest In India
Amazon India’s installment offering, Amazon Pay Later, has reached a customer count of 2 million, according to recent reports. Launched amid the pandemic, the Pay Later program, as the name suggests, gives consumers the option to either buy now and pay next month, or pay in installments.
According to reports, the installment offering has 10 million-plus transactions at a 99.9 percent payment success rate since its launch for Indian consumers a little over a year ago.
“We are humbled to serve millions of customers on Amazon Pay Later and offer a virtual line of credit to customers shopping on Amazon.in. Amazon Pay Later provides a seamless payment experience with in-built security features and empowers our customers to better manage their monthly spends. 2 million sign-ups are a testimony of customers’ adoption and trust to choose Amazon Pay,” said Amazon Pay India Director Vikas Bansal, noting the growing preference among Amazon customers for digital payments, along with a readily accessible credit line, is quickly taking off.
Klarna’s Explosive Growth Spurt
Swedish BNPL giant Klarna got the summer started with a bang — $639 million in venture funding, to be used to expand internationally and further capture retail customers. The new funds bring the firm’s valuation to $45.6 billion, making it “the highest-valued” privately held financial technology (FinTech) company in Europe and the second-highest worldwide.
A funding round announced in March hit $1 billion, pegging Klarna’s value at $31 billion.
Klarna has enjoyed rapid growth in the decade since its founding, particularly in its expansion in the U.S. The rise of BNPL plans last year, driven by COVID-19 and a big shift to online shopping, gave the company a big boost.
“Consumers continue to reject interest- and fee-laden revolving credit,” said Klarna Founder and CEO Sebastian Siemiatkowski. “Klarna’s more transparent and convenient alternatives align with evolving global consumer preferences.”
And looking to keep the pace of advance up, Klarna closed down June with another big announcement: plans to partner with embedded business finance platform Liberis to help it offer its eCommerce clients revenue-based financing.
The deal will see Klarna’s 250,000 merchant partners in 17 countries offered flexible financing, pre-approved with payment terms that are based on their revenues and actual transactions.
Going forward, merchants will be able complete a quick approval and underwriting process and receive the funds within two business days of applying. All of the transactions for the financing — both receipt and payment — take place within the merchant’s Klarna account, at a pre-arranged rate of their choosing.
Sezzle’s Sizzling Summer
BNPL firm Sezzle also announced a big expansion in June, this one in the form of a partnership instead of a fundraise.
Sezzle has announced a three-year deal to provide its interest-free installment product to Target customers — an agreement that will see Sezzle’s product used in-store and across Target’s digital platforms to provide consumer interest-free options when they shop at Target.
Sezzle President and Co-Founder Paul Paradis told PYMNTS in an interview about the team-up that Target is the first top-10 retailer in the U.S. to offer a “pay in 4” solution, and the partnership marks the breakdown of an important barrier and portrays how far BNPL has come in the U.S. market.
“BNPL has been fairly localized to fashion and beauty, but Target is a mass retailer selling just about everything under the sun,” Paradis said. “So, I really think that this signals that BNPL is going to become more ubiquitous across retail.”
The last few years have seen a wave of new payment solutions rise, all united by the emerging consumer demand for payments that are faster, easier to use, mobile-friendly and flexible, he said.
“If you can deliver all of those and the solution looks great, you’ll generate consumer demand,” he said.
Afterpay’s Ongoing Global Push
Afterpay’s goal, according to its announcement of the new program, is to promote “responsible spending,” as opposed to some other credit card schemes that instead look at incentivizing customers for increasing spending.
Talking to PYMNTS, GM Khoga noted that the firm’s loyalty programs focus on rewarding consumers for good behavior and paying on time, versus dangerous behavior like the excessive spending that comes with credit cards. Khoja noted BNPL runs best when it runs for both sides of the transaction — the merchant and the consumers. It is what has spurred Afterpay’s growth in specific over the last few years, and the massive growth in the segment in general.
Consumers have spoken, and what they want are newer, more transparent ways to pay over time, without risking penalties, he said.
“So, BNPL is really turning the paradigm on its head,” he said, “and incentivizing consumers to do things right and pushing them to spend their money in a very responsible way.”
Afterpay customers will be able to join the program regardless of their payment status in the app, the release says, and they’ll have other benefits on offer including things like no payment required upfront, gift cards available and new offers and promotions from various companies.