Buy now, pay later is here to stay.
A year ago, the biggest players in the space were companies founded solely to offer consumers the ability to pay in installments at the point of sale. Sweden’s Klarna, Australia’s Afterpay and U.S.-based Affirm were the top names associated with BNPL.
But the landscape looks very different now that more companies recognize the opportunity and fight for a piece of the pie. PayPal last month spent $2.7 billion for Japan’s Paidy in an effort to crack the market in Asia. In early August, Square announced plans to acquire Afterpay in a $29 billion deal. Even Apple is said to be getting into the BNPL game.
Today’s BNPL space is seeing a slow emergence of a symbiotic relationship between traditional financial institutions, payments upstarts and leading companies. As credit card and payments firms eye BNPL as a new growth opportunity, incumbents like Klarna and Affirm are seeking ways to make their installment loans available to more consumers.
The bigwigs enter the fray
Now that consumers are growing comfortable with BNPL services, the big credit card providers are taking steps to ensure they aren’t left behind. Visa said on Wednesday that a “growing list” of issuers, acquirers and fintechs are using its technology to offer BNPL options to their customers.
In a statement, Mary Kay Bowman, Visa’s SVP and global head of payment and platform products, said the company has been “enthusiastically embracing BNPL” for years “because it expands choice and convenience for buyers and sellers alike.”
“If shoppers prefer a BNPL fintech solution, we are here and enabling it,” she said. “If they want an option from their banks, we’re helping offer those too.” Interestingly, Visa said today it has inked a “global brand deal” with BNPL giant Klarna to accelerate its expansion and scale in several markets.
The news comes a month after Mastercard announced its own BNPL offering: Mastercard Installments. Mastercard’s chief product officer Craig Vosburg said at the time: “At the heart of it, payments come down to choice — and people want more from their money with greater flexibility and control in how they pay and where they shop.” The company said the move was driven by both merchant and consumer demand.
It’s not really a surprise that these credit card companies are stepping it up when it comes to BNPL. If anything, it’s a wonder that it took them this long. More customers choosing to pay in installments means less interchange revenue for the likes of Visa and Mastercard. It only makes sense that they have found a way to make sure they’re not left out.
But despite its growing popularity, some argue that BNPL is just another form of debt and can be detrimental to people who are already struggling financially.
Payments providers embracing BNPL
The big credit card companies aren’t the only ones seeking to be a part of the BNPL land grab. Smaller payments companies like Stripe and Marqeta are also getting in on the action by making BNPL a part of their API offerings.
Earlier this week, Stripe said it was working with Klarna to let its customers offer installment options at the point of sale. According to the announcement, the partnership will give customers in 20 countries access to BNPL services and will also make Stripe the preferred payment partner for Klarna in the U.S. and Canada.
This isn’t Stripe’s first BNPL partnership: Stripe partnered with Afterpay to integrate its payment service into their checkout flow in February. But the deal was announced before Afterpay was acquired by Square, so Stripe’s partnership with Klarna could be a hedge against losing BNPL access owned by the competition.
While Stripe is partnering with some of the big players in the BNPL space, card issuer and payments platform Marqeta is taking a different approach. It announced a partnership with BNPL provider Zip, which helped the Australia-based company increase conversions through the use of virtual cards.
Marqeta also struck a deal with bank tech provider Amount that is designed to expand the availability of virtual cards and BNPL solutions through more traditional financial institutions. By offering BNPL in more places, these payment companies hope to get a small cut of the burgeoning market.
BNPL companies jockey for distribution
While credit card and payment providers are trying to get in on the market, how the big BNPL players are positioning themselves can help us understand where the space is going. As the market continues to grow, Klarna, Affirm and Afterpay are each establishing their own lanes in the hunt for greater distribution.
Afterpay, which already has a strong presence at brick-and-mortar retailers’ checkout counters, was a perfect acquisition partner for Square and its network of point-of-sale merchants. By teaming up, the companies will have BNPL opportunities with more Square merchants, while also giving Afterpay a broader distribution network.
At the same time, Affirm has gone whale hunting. The company’s partnerships with companies like Amazon, Shopify and American Airlines allows it to increase volume by simply being available as an option during online checkouts, which millions of end users use every day.
Klarna, meanwhile, is seeking to expand its reach through a series of partnerships with card issuers and payments providers that will help it embed BNPL into the long tail of online merchants. By striking deals with companies like Visa and Stripe, it is counting on fintechs and developers to drive its growth over time.
It’s unlikely that BNPL is a winner-take-all — or even a winner-take-most — market. It seems different options will be available in different contexts, whether a consumer is making a transaction at an offline merchant, through a global e-commerce behemoth, or at one of the tens of thousands of independent checkout pages powered by Stripe.
And just as Klarna, Affirm and the like will continue to find new ways to get in front of more customers, e-commerce and payments companies will pursue BNPL as a way to expand their businesses.