From gadgets to groceries, people have more ways than ever to pay in easy pieces. The buy now, pay later (BNPL) revolution is taking off around the world, largely driven by digital platforms. Though slower to gain traction in the United States, the revolution is coming here too. In a recent survey, the number of Americans who have used a BNPL service grew by more than 50% in the past year alone.
One thing we know for sure: the first merchants and processors to adopt BNPL solutions will have an edge on this new revenue stream. As the market takes shape here in the United States, COCARD will make sure we and our clients are the first to capitalize.
Buy Now Pay Later: A New Lease on an Old Idea
Buying something and paying for it later certainly wasn’t invented yesterday. Layaway, installment plans, and of course credit cards have been around for generations. However, what’s changed is how easily people can now pay for products, big and small, in installments, and often without interest. The companies that facilitate these transactions range from dedicated firms, like Affirm, Afterpay, and Klarna, to merchants financing their sales in-house.
BNPL companies generally pay the merchant the total purchase value upfront. They make their money on consumer purchase data, interest when they charge it, and by taking a fee on the purchase order to compensate for the risk and delayed payment.
A big part of the picture, especially overseas, are tech companies, particularly eCommerce players. Major eCommerce platforms like AliBaba and MercadoLibre are empowering their consumers to transact, on and off their platforms, with digital wallets and flexible payment plans. Around the world, the growth in BNPL sales is roughly 50%, and it’s particularly powerful in Asia and Latin America.
US: Yesterday’s Leader in Payments Technology
Something interesting has happened in the payment space over the past five years or so. While the United States has historically been a trailblazer when it comes to new payment technologies, from credit cards to online banking and P2P solutions like PayPal, that trend has recently bucked.
Other countries, particularly in developing regions like Latin America and Asia, are leapfrogging banking solutions for digital wallets and installment plans, often without even involving a bank on the consumer side. eCommerce leaders overseas have really led the charge, proving to be the leading innovators in these spaces. MercadoLibre, often called the Amazon of South America, now sees more revenue from its financing solutions than its core eCommerce platform.
What’s driving this shift in leadership? One factor is comfort with the status quo here at home. The US has a mature, well-developed banking and credit system, making it easy for most Americans to use a credit card for purchases they can’t immediately afford. Importantly, most Americans at least have a checking account that they can use to buy online. Americans generally aren’t left pining for products just because they don’t have the credit or a bank account.
In developing countries, on the other hand, the market wasn’t quite ready for eCommerce, largely because digital payments are a challenge. To illustrate, roughly half of Latin America’s population has no bank account, leaving consumers without a way to turn cash into commerce, or a means to break payments down into easier chunks. This situation put the onus on eCommerce companies and other providers to reach consumers with their own solutions.
As the saying goes, necessity is the mother of invention. Tech firms around the world are finding innovative ways to make big purchases and online orders more accessible to the majority of their market. This means offering digital wallets without the usual hassle of creating a bank account, as well as BNPL solutions to take the load off a big purchase.
“If It Ain’t Broke…”
You may be asking, “Well, if the US doesn’t have the same problem with credit and bank accounts that developing countries do, why should BNPL take off here?” Much like the delayed arrival of contactless payment apps, the US is adopting BNPL because it makes life easier for consumers and generates more revenue for merchants.
Where’s the market here in the United States? As we see with services like Affirm, Afterpay, and Paypal’s Pay in 4, there is a growing demand for the service. Promotional payment plans are an easy way to add value and excite customers to buy your product. Additionally, BNPL facilitators often charge no interest, on installment payments, making them a more attractive option than putting a big buy on your AmEx.
One thing is safe to say: credit and debit cards are likely to keep their role in the transaction. While banks don’t always have a role in BNPL solutions for developing countries, Americans aren’t likely to ditch their bank accounts any time soon. Consumers will opt for installment plans on purchases, deferring interest on their credit card, or keeping cash in their checking accounts.
BNPL is an exciting addition to the evolving payments landscape. As it gains traction here in the United States, COCARD will help our members and merchants stay ahead of the game.