Buy Now, Pay Later: The “New” Payments Trend

Buy now, pay later (BNPL) offers have been around for a long time. They were also known as point-of-sale loans or layaway plans and were not as popular as until recently. The pandemic became a fruitful soil and buy now pay later has exploded in popularity.

Today many big retailers already partner or are testing such buy now pay later options as Klarna, AfterPay, or Affirm. Thus, Amazon’s currently testing Affirm. Macy’s is offering Klarna. Bed Bath & Beyond is also offering Klarna at checkout. Walmart added a buy now pay later option. Even Apple announced a BNPL service.

With big retailers adding BNPL payment options, other companies also join the move and give a shot to see if buy now, pay later is as good and can improve sales. Not only BNPL companies became popular, but they have also gotten snapped up by bigger companies. Square buying Afterpay. PayPal buying a Japanese installment payment startup. Goldman Sachs buying GreenSky.

There are a lot of buy now, pay later companies, and the ones mentioned above are some of the biggest companies. They all work pretty much the same: allow customers to pay for an item in installments. Sometimes they charge interest but not always. Their main way of making money is by charging merchants for each transaction. Still, if a consumer misses a payment, there may be some fees charged and the consumer might not be able to use the service again.

The difference between BNPL and layaway is that with the first you take the item home while with the second you cannot do so until after you’ve paid it all off. As for credit cards, you have to pay the whole amount for the item and if you do not want to pay the interest, you have to pay the whole amount at the end of the month (unless your card has a 0% promotional rate).

Also, buy now pay later is easier to get approved for because they do not necessarily require a credit score. And some 53 million adults in the U.S. do not have one. Buy now, pay later companies say that they look at other factors to determine the creditworthiness of the customer. Those factors often depend on the product the customer is buying. But probably the main factor is income, and most notably, the person’s recurring income to the point where they’ll be able to pay this installment plan.

Easy access to buy now, pay later offers has surged consumer interest in them during the pandemic and beyond. People turn to BNPL to finance everything from clothing to travel to workout equipment. But will this trend continue? Industry experts are rather skeptical and foresee some risks to the buy now, pay later model. However, only time will tell whether they are right or not.