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Surge In The BNPL Market Leads To Rise In Competitive Contenders

By Cristian Bustos. Originally published at ValueWalk.

bnpl services online holiday sales season shopping Alibaba Group Holding

There has been a surge in the popularity of BNPL (Buy Now Pay Later) products that allow consumers to split purchases into installments this year, according to a recent CNBC survey. This surge is predicted to continue throughout the holiday season.

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BNPL Gains Popularity

BNPL giants like Affirm, Klarna, and Afterpay have become household names in the United States and popular checkout options among consumers making online purchases. Although Buy Now Pay Later is not a new concept, it gained more popularity during the COVID-19 pandemic as millions of financially strapped consumers looked for flexible ways of making payments. Splitting purchases into installments and paying them off over a longer period, often at 0% interest, seemed like a safe bet for millions of Americans dealing with uncertainty around their employment and expenses.

The growing consumer popularity was also reflected in increased market activity as companies, big and small alike, raised more money and made bigger bets on the booming BNPL market. In January 2021, Affirm went public, selling shares at $49 apiece — an implied valuation of $12 billion. After listing on the NASDAQ, Affirm’s shares shot up 98%, lifting its market valuation to $23.6 billion. In June 2021, European fintech giant Klarna raised $639 million at a staggering post-money valuation of $45.6 billion. And the third quarter of 2021 was abuzz with news of Square buying Afterpay for $29 billion in an all-stock deal. Others, such as PayPal, joined the race later and introduced a “Pay in 4” offering in September 2020 and have since strengthened their positions in the BNPL market. Notably, PayPal CEO Dan Schulman decided to make a bet on the Asian markets by acquiring Japan’s Paidy for $2.7 billion in September 2021, almost a year after introducing its BNPL product in the U.S.

To add to this activity, Buy Now Pay Later startups are flooding the market, growing fast, and raising more money than ever before. While incumbents like Klarna, Affirm, and Afterpay have become dominant players in the e-commerce market, the BNPL cohort of startups is tapping into demand in other parts of the market that remain untapped by the largest players. Having used BNPL products online before, consumers now have a bigger appetite for using them elsewhere too and are looking for alternatives to using credit cards. Latin America’s Addi, the U.K.’s Zilch, Europe’s Scalapay, and U.S.-based startups such as Wisestack and Resolve are some of the growth-stage startups that have had success raising venture capital dollars this year.

Early-stage startups are also innovating in this space. Healthcare, weddings, fashion, home renovations, and utility bill payments are some of the places where startups are now offering BNPL-style financing options, either directly to consumers or through businesses. One thing that has become apparent with the growth in BNPL companies is the fact that each of these companies specializes in a different aspect of the industry. Thus, you must know which company provides the type of service you need. For example, new BNPL startup Neon specializes in essential bills like utility bills, rent and insurance. On the other hand, Affirm offers longer-term financing options for purchases with a 0% APR and no fees.

Pay Bills In Installments

Led by Megha Agarwal and Aveedibya Dey, Neon, a Chicago-based startup, offers an interest-free credit line and “Pay in 4,” i.e., the option to pay bills in four equal installments. This gives users the flexibility to make smaller but predictable payments over a longer period without incurring any debt. Since the pandemic began, people have been stressed about making their bill payments on time, and more than half of Americans have missed one or more payments in the last six months.

Affirm offers loans lasting from one to 48 months with a limit of $17,500 per loan. The company’s loans cover big-ticket purchases, and it is one of the few BNPL companies that offers long-term financing with a 0% APR. However, consumers could end up with an APR as high as 30% depending on the interest rate, purchase amount, term of the loan, and merchant.

Another option is Afterpay, an Australian company acquired by Square. Afterpay is the best option for those who can make their payments on time, want a short-term financing solution with 0% interest, and want a loan that won’t affect their credit score. BNPL startups are carving out niches for themselves in the space. For example, Resolve is for B2B purchases, Walnut is for medical bills, Graviti is for home appliance purchases in Latin America, and BlueTape is for building materials and construction.

While uncertainty around employment, finances, and lost jobs are some of the reasons people have missed payments, many have just been overwhelmed by their new lives in the COVID era. Essential workers have been working extra-long hours, parents have been juggling work and taking care of kids at home, and the list goes on.

BNPL solutions provide a platform where users can connect their bills just once, and then every month, the company automatically consolidates all bill amounts, automates payments, and sends notifications letting them know that their bills are paid.

Final Thought

In a time of intense financial turmoil, BNPL solutions are bursting to support customers in sustainable and effective ways. Financial stress has an immense impact on one’s physical and mental wellbeing, and you can eliminate financial stress by making use of such BNPL options. At the end of the day, it is advantageous for both the business and the client.

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