NewsWire: 2/10/21
- “Buy now, pay later” transactions have soared as much as 200% during the pandemic. The majority of these transactions are for everyday fashion and beauty purchases, though some are also using it to splurge on big-ticket items like Pelotons. (The Washington Post)
- NH: I first touched on the rise of “buy now, pay later” in 2019, when apps like Afterpay, Klarna, and Affirm were beginning to make inroads into the U.S. market. (See “Millennials: The Layaway Generation.”) Now these services are accepted at a long list of national retailers, including Walmart, Macy’s, Urban Outfitters, and Sephora. Afterpay, which is based in Australia, saw its U.S. customer base more than double to 6.5 million in the year prior to June 2020. Affirm (AFRM), which went public last month, is up 174% from its IPO of $49 a share. Morgan Stanley estimates that BNPL could grow from 1.6% of U.S. e-commerce in 2019 to 12% of global e-commerce by 2025.
- Typically, BNPL companies divide the cost of a purchase into installments, which are paid off over a set period of time (usually every two weeks). If users miss a payment, they get charged a late fee ranging from $7 to $10. The vast majority of customers back their purchases with debit cards instead of credit cards.
- Unlike, say, layaway, BNPL is most commonly used for everyday purchases. Fully 70% of transactions are for fashion and beauty products. One of the most popular holiday purchases with Afterpay was Old Navy thermals. But it’s also being used for big-ticket purchases as well: Peloton bikes make up nearly a third of Affirm’s business. (See "The Gym Versus The Home Workout.")
- BNPL’s core customer base is Millennials and Homelanders, many of whom see it as a safer option than credit cards. These services don’t charge compound interest, and some block shoppers from making more purchases until they’ve paid off their balances. Afterpay claims that 95% of its purchases are paid on time. Yet according to a Credit Karma survey, nearly 40% of Americans who have used BPNL have missed more than one payment.
- You could see BPNL as providing a useful service that helps people without access to traditional financing buy everyday items and avoid debt. You could also argue that it’s just another version of credit; after all, people are still being encouraged to buy more than they can afford on the spot. Good or bad, the industry is growing rapidly--and I wouldn’t be surprised if it soon comes under regulatory fire from Senators Sherrod Brown and Elizabeth Warren on the Senate Banking Committee and (perhaps) by the Biden administration..
