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Frictionless Payments
Written by Cyndie Martini
on July 06, 2021

Buy Now Pay Later or BNPL has been on a steady uptrend for some time now, and that doesn't look like it will change any time soon. It is one of the fastest-growing areas within the financial industry. BNPL is a payment method that lets customers purchase an online item and spread their payments over a few months. Payments generally consist of three or four, and there is no interest, making BNPL a credit card competitor.

Klarna, the largest BNPL service provider, recently announced that it had raised $639 million in additional funding, valued at $45.6 billion. That is a 4X in value over only eight months.

Klarna's customer base has increased as well. American customers are up 118% year over year. In Q1 of 2021, it generated $18.1 billion in transaction volume, mostly from Europe. Klarna's largest competitor, Afterpay, had $4 billion in Q1 volume, with Affirm coming in at $2.3 billion.

Compared to the large credit card players (MasterCard, Visa, and AMEX), which had $3.5 trillion in credit card transaction volume for 2020, BNPL is a very small industry. But that also means it has plenty of room to grow.

At the end of last year, Paypal launched its BNPL service called Pay in 4. As the name states, it lets customers pay for a larger purchase over four installments with no interest.

BNPL has a few difference when compared to credit cards:

  • Most services are interest-free
  • Unlike credit cards, BNPL is used for larger purchases instead of everyday spending
  • When Interest is applied, it doesn't compound in the same way that it does for credit cards

Because of its fee structure, BNPL will never have the same profit margins as credit cards. But that is unlikely to stop the industry's current growth rate as shifts in consumer spending due to the pandemic continue to play out.

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