The BNPL War Has Begun: Reorganize Your Digital Payment Strategy
October 15, 2021
Arguably the single biggest market disruptor in terms of digital payments and online retail sales in 2021 has been the shift to “buy now, pay later” (BNPL) services. PayPal and Amazon have already seen significant increases in digital payments over the last year thanks to BNPL, and these types of innovations keep investment money flowing into Amazon and PayPal shares.
The Shift Began in 2020
During the pandemic when many shoppers have been strapped for cash, “buy now, pay later” programs are perhaps the best thing since credit cards. Many businesses seem to have caught on as companies fight to win the hearts of customers with flexible payment options.
PayPal was the first fintech giant in the digital payment space to expand BNPL services in August of 2020 following its partnership with — and eventual acquisition of — Paidy, a Tokyo-based startup that underwrites payments to merchants based on artificial intelligence assessments of consumers’ creditworthiness.
PayPal quickly introduced a new installment credit option for PayPal users called “Pay in 4.” The name itself explains what the service offers — basically, it’s the ability for customers to pay for purchases, interest-free, over four separate payments. The service is an expansion on PayPal’s existing lineup of Pay Later solutions, which also includes PayPal Credit’s revolving credit line and its Easy Payments.
With Pay in 4, customers can choose to pay for purchases between $30 and $600 over a six-week period. Because it’s included with the merchant’s existing PayPal pricing, they won’t have to pay more fees to offer the option to their customers — as they do with several competitive “buy now, pay later” services.
For customers, the short-term payment option allows them to pay for a purchase over time, without fees or interest. After their initial payment, the remaining three payments are automated. The feature will also appear in the customer’s PayPal wallet, where the payments can be managed.
The BNPL Rush Continues in 2021
Amazon announced in September of this year that it is partnering with Affirm Holdings, Inc., a major player in the BNPL arena. This move is part of Amazon’s initiative to bring in new, younger customers and generate more revenue from sales of big-ticket items.
Amazon now offers customers the option to split purchases of $50 or more into monthly, interest-free installments. There is no need for a credit check, and Amazon can leverage its existing collection of consumer data to mitigate risk by only offering the buy now/pay later option to specific customers for specific purchases.
Square, Inc. (SQ) announced that it bought Afterpay for $29 billion earlier this year. Afterpay is another BNPL payment option that has popped up at many online stores during checkout since the beginning of the pandemic. After signing up for an Afterpay account, customers can place online orders up to $1,000 and split the cost into four payments, due every two weeks. There’s no credit check and no fees as long as your account has enough funds when the split payments are automatically taken out. Afterpay partner stores currently include Cost Plus World Market, Forever 21, DSW, Urban Decay, Finish Line, Urban Outfitters, Ray-Ban, and J.Crew Factory … just to name a few.
Zip Pay (formerly known as QuadPay) is another BNPL service provider making big waves in the ocean of digital payments by letting you split payments anywhere that accepts Visa. Sign up for a Zip account and link your credit or debit card to be able to pay with a “ghost” Visa card. Customers can make online purchases through the Zip app or use the Visa card number provided by Zip for purchases anywhere Visa is accepted. All purchases are split into four payments, scheduled over a six-week period, and are linked to your preferred credit or debit card. Once again, there’s no credit check and no fees or interest when using Zip.
Clearly, the BNPL digital payment solution has gathered steam during the pandemic. It’s also a pretty safe bet that the BNPL movement is here to stay. Not only that, it’s likely to grow. The only question is which digital payment service providers will adapt to market demand for BNPL services and which providers will be left behind.