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How buy now, pay later became a $100 billion industry


Klarna logos displayed on a laptop and phone screen.

Jakub Porzycki via NurPhoto via Getty Images The moment of buy now and pay later has arrived.| NurPhoto via Getty Images

Buy now, pay later is having a moment.

Millions use a buy-now, pay later or BNPL service to fund their purchases. And the options are more varied than ever — Klarna, Affirm and Afterpay are just a few of the many providers in the space.

Meanwhile, big companies are jumping on the bandwagon, with PayPal launching its own product, Amazon and Apple partnering up with Affirm, and Square agreeing to buy Afterpay in a $29 billion deal.

BNPL firms tout their service to be a more affordable alternative than credit cards. Critics are concerned that many are spending beyond their means and may not realize it.

What is the meaning of buy now and pay later? It is why it has suddenly become so successful.

What exactly is BNPL?

BNPL, or point-of sale loans, allow shoppers to pay their merchandise over a set period.

This concept is not new. The concept of instalment plans, also known as “layaway” or “layby” in Australia, has been in existence for many years. They allow people to spread the cost over a period of time.

BNPL offers a comparable arrangement. Consumers purchase the product upfront but then pay incremental amounts. This can often be done without any interest.

Buyers have the option to choose BNPL when shopping online. It takes just a few mouse clicks. They pay the initial instalment and are then invoiced for the rest over three to four weeks.

BNPL providers will often place a checkout button on a retailer’s website, and take a percentage from each merchant for every transaction. This is often a way for retailers to be incentivised to accept this because it leads to lower average orders and higher conversion rates.

Some BNPL companies also make income through late payments fees and interest for longer-term installment plans.

The advantage for shoppers is that they can buy a more expensive item than they might normally be able to pay for in one go — say, a $300 jacket — and spread the cost of their purchase over monthly instalments.

It is so well-liked.


This pandemic caused many brick-and mortar stores to be temporarily closed and consumers began spending more time at their homes.

Online shopping grew as a result. According to a report from Worldpay, the payment processing firm owned by FIS, global e-commerce transactions totaled $4.6 trillion last year, up 19% from 2019.

BNPL accounted for 2.1% — or about $97 billion — of that sum. Worldpay predicts that this figure will rise to 4.2% in 2024.

BNPL plans were already popular before the epidemic, but a change in consumers’ spending patterns and increased e-commerce adoption helped give the market a boost.

That’s been a boon to a number of companies in the space, with Klarna reaching a $46 billion valuation in a recent private fundraising round, PayPal acquiring Japanese firm Paidy for $2.7 billion and Square snapping up Afterpay.

Are there any risks?

One main concern about BNPL is its potential to encourage consumers to buy more than they are able. Pay-later plans have become very popular among Gen Z and millennial shoppers.

Which?, a consumer advocacy group in the U.K., says it conducted an investigation which found that almost a quarter of BNPL users spent more than they initially intended to because the service was available.

People are concerned about how easy it is to get into debt.

The sector has been compared to controversial payday loans that allow short-term borrowing, often with high interest rates. BNPL does not charge interest and some providers have high late fees.

BNPL providers claim they have measures in place to ensure that users don’t spend too much. Klarna, for example, sets spending limits on a case-by-case basis.

Klarna’s CEO Sebastian Siemiatkowski told CNBC that each transaction is unique and requires a fresh approach.

We can expand their access to it if they use it in positive ways. We’ll restrict or even stop them from using it.

However, critics claim that BNPL must be regulated to protect customers. The U.K. government is seeking to rein in the industry with a range of proposals including affordability checks on customers. In October, a consultation will be held on the proposed rules.

For their part, Klarna and Clearpay — the U.K. arm of Afterpay — say they welcome the move toward regulation.