BNPL: All the buzz in payments

Buy Now, Pay Later (BNPL)

If you've purchased anything online lately, you've likely encountered an offer to buy now, pay later (BNPL) by making an initial payment and then three additional payments two weeks apart—with the promise of no fees or interest.

Brands like Affirm, Klarna, Afterpay, and SetPay, help consumers buy clothes, appliances, electronics, and more—and pay over time with just a few easy (and low) payments. According to a report from the Consumer Financial Protection Bureau, lenders segment their loan volume by merchant verticals like everyday, apparel, home, health, automotive, and more.

And since the concept debuted about five years ago, it's experienced rapid growth in usage among consumers.

In fact, from 2019 to 2021, "the number of BNPL loans originated in the U.S. by the five lenders surveyed grew by 970 percent, from 16.8 to 180 million," according to the same report. Additionally, "the dollar volume of those originations ... grew by 1,092 percent, from $2 billion to $24.2 billion." The everyday vertical alone has grown from $3.2 million in 2019 to $229.2 million in 2021.

For the past few years, consumers have enjoyed that their BNPL loans are often not reported to credit bureaus. Additionally, they are well integrated into the online shopping experiences, have strong brand awareness, and have no interest or fees. For the providers, the challenges moving forward include that the model is based on low interest rates (which are climbing now) and "little or no impact" on consumer credit, which may change.

Consumers are making the choice

So, where does BNPL fit in the payment scheme? BNPL brands have captured the consumer desire for time over points (although consumers can still rack up points offered by merchants in many cases). Between bank cards, credit cards, store cards, BNPL, and installment loans, consumers truly have a choice—time, points, and partial or full payment at nearly every turn. All of these choices help consumers get what they want and need using innovative financing options easily integrated into the buying experience.

Lunne is a marketer for national consumer finance brands, and we see choice and ease as real wins for merchants—and for their consumers.