- Buy now, pay later is growing in popularity among retailers and consumers.
- Fintechs like Afterpay and Klarna, which have millions of users, saw massive growth in November as holiday shopping kicked off.
- Here’s how leaders in the space fared on Black Friday and Cyber Monday.
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Buy now, pay later, also known as point-of-sale financing, has become a must-have for retailers, especially online.
And the kick-off of the holiday shopping season only solidified buy now, pay later’s rise as a new way consumers want to pay. In November, the likes of Afterpay, Quadpay, and Sezzle saw triple-digit growth year-over-year, all while adding record numbers of new customers.
In-store foot traffic on Black Friday fell by 52% this year. Meanwhile online sales, where buy now, pay later players see most of their volumes, rose by 22%.
Across the board, buy now, pay later fintechs have seen a massive boost in 2020, and they’ve been busy launching apps and loyalty programs to build stickiness.
With user numbers in the tens of millions and valuations in the billions, it’s likely that buy now, pay later is here to stay.
What remains to be seen, though, is the road to profitability of the business model.
Buy now, pay later lender Affirm, which was founded in 2012 by PayPal cofounder Max Levchin, has come into the spotlight as a result of its plans to go public this year. In its S-1 filing, Affirm reported total revenue of $509.5 million in the fiscal year ending on June 30, up from $264.4 million the year earlier.
However, the startup had a net loss of $112.6 million during the most recent fiscal year, slightly narrower than the $120.5 million net loss the year before. Also, 28% of Affirm’s total revenue came from one merchant: Peloton.
Pricing is another area where buy now, pay later providers could face pushback.
Every time a shopper uses a buy now, pay later option at checkout, the installment-provider typically charges a fee, usually between 3% and 6%, which is higher than average fees paid for credit and debit-card transactions. As buy now, pay later grows in popularity, merchants may rethink whether offering the payment plan is worth it for the extra cost, or that cost may get shifted onto consumers through the price of goods.
And now, Capital One says that it won’t approve buy now, pay later purchases on its credit cards, according to Reuters. It’s the first major credit-card issuer to take a step against buy now, pay later shopping. Though many buy now, pay later players say their customers primarily use debit cards to check out. Afterpay, for one, says that 90% of its transactions use debit, not credit cards.