“Buy Now, Pay Later”: a New Global Trend

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For a long time, the payment method ‘invoice purchase’ was considered boring. In the meantime, some of the Fintechs have created a worldwide trend based on the principle “Buy now, pay later”. “Buy now, pay later” platforms allow users to buy products immediately and pay for it later.

A wave of large corporations suddenly makes it possible to finance everything from game consoles to hair styling funds with small monthly payments.

And as online retailers continue to grow and consumers are looking for more ways to save money with COVID-19, the Buy Now, Pay Later (BNPL) service has gained popularity.

How does it work?

Some large retailers introduced the principle “Buy now, pay later” decades ago with their catalogues. Customers were able to order, try on clothes and shoes, for example, and send them back. They only paid for what they wanted to keep.

In online fashion retailing a good half of the goods are returned. Invoice buying is particularly suitable for this application. This payment method, which was often considered boring in the past, is suddenly also becoming an international trend. Why? In the meantime, providers can better determine the creditworthiness of customers by collecting data.


Payment example
Payment example.


In countries with many credit cards, invoice-purchasing was not so widespread in the past, but now a younger generation no longer wants to pay by card alone and is relying more on deferred payment.


Credit Cards Statistics
Australian market.


With the point of sale loans, consumers can buy something in stages, often without interest. Businesses can charge interest later as well as late payment or processing fees. Like the credit card issuer, they can also receive interest on the transaction price.

‘Buy now, pay later’ companies

Afterpay is one of a handful of promising Fintech companies that are looking to expand into a specific global market. Sweden’s Fintech Klarna – recently valued at around nine billion euros – is also among them. Affirm is one of the most popular and fastest-growing companies in this industry. Earlier this year it announced a partnership with Shopify and is working with 6,000 retailers.

The companies’ payment offers are summarised under the term “Buy now, pay later” – also known as invoice-purchase or in the form of consumer loans.

The success of the companies

In contrast to neo-banks like N26 or Revolut, the providers have already shown that they can make a profit. The companies earn – depending on the product – on merchant fees, interest and late fees.

Klarna (Sweden) and Affirm (USA) have just been able to raise large financing rounds – they illustrate how hot the market is. Klarna doubled its company valuation to around nine billion euros. Affirm, behind which Paypal founder Max Levchin stands, raised 424 million euros – the latest valuation is not known. The company is also preparing for an IPO (initial public offering).

The USA and Europe markets

The high valuations lead to new growth fantasies, which can be achieved mainly through new markets. For the Australian companies, the market is limited, Afterpay is pushing into the USA and Europe. Only recently it has bought a player in Spain and wants to grow strongly in the UK.

The US market in particular, as with the neo-banks, is considered a large future market. Klarna has focused a large part of its forces on it. It now has nine million customers in the USA – out of a total of 90 million.


Global “Buy Now Pay Later” Platforms Market Share (%), By Region, 2019.


The growth lever here is the online merchants who integrate the payment services. In contrast to smartphone banks, they do not have to worry as much about marketing to end customers, which is often an expensive business.

Only Klarna has taken this path and wants to reach customers directly with a lot of marketing, a comprehensive app and a bank card. From the app, customers can shop, receive their own offers or get inspiration for new products.

Fintech is also increasingly becoming a banking provider through its offers. Loans for cars or houses will not be able to be financed by Klarna for the time being, but maybe one day – who knows.






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