The Attraction of “Buy Now, Pay Later” Platforms

The Attraction of “Buy Now, Pay Later” Platforms

Merger and acquisition activity is accelerating in the consumer fintech space with the recent announcement of Goldman Sachs’ purchase of GreenSky for $2.24 billion and Square’s recent deal to acquire Afterpay Ltd. for $29 billion.

It’s little wonder why this interest is so high considering that the shares of Affirm—a buy now, pay later app—soared nearly 47% following the announcement of a partnership with

What is “Buy Now, Pay Later”?

Buy now, pay later (BNPL) is a throwback to a time when companies offered consumers the incentive to buy a product at no interest or without making any immediate payments for a prescribed period of time (“No payments until the New Year!”).

Consumer fintech lenders have come up with a technology-based, 21st century restyling of this old idea that offers wider payment choices and transparency around the payment schedule and interest payments.

There are three basic loan types offered by BNPL providers:

  • A traditional fixed interest loan, whose term period may range from three to 36 months and whose interest may be anywhere from 0% to 30%
  • An installment plan—typically four equal installments at 0% interest due every two weeks, with the first payment due at purchase
  • Zero interest, provided full payment is made within 30 days of purchase, similar to a credit card

Why the Interest in BNPL?

The attraction of BNPL financing is rooted in its explosive growth and the expectation that it will continue to outpace the growth of other unsecured lending. In other words, expect BNPL to increase its market share capture from traditional banks.

According to projections by McKinsey & Company, a consultancy, point-of-sale financing is expected to grow from its 7% share of unsecured loan balances in 2019 to 15% by 2023. At today’s levels, this has already diverted $8 – $10 billion in annual revenues from banks.1

This outsized lending growth is a reflection of consumers’ rising demand. This same McKinsey survey found that 60% of consumers are likely to use point-of-sale financing over the next six to 12 months. Be clear, this is not the domain of lower income cohorts; in fact, 65% of BNPL receivables are with consumers having a credit score of 700 or higher.2

Why it Matters

For financial advisors, BNPL can present several planning challenges since such arrangements can encourage overspending, missing payments can trigger high fees and penalties, there is little oversight of such lenders, and numerous small loans can become difficult to properly track and budget for.

As a consequence, advisors assisting clients with cash flow planning may want to pay particular attention to how much income is used to pay down BNPL spending.



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