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Buy Now And Pay Later: What It Is, And How Does It Work?

Thanks to the evolution of digital technologies, the world of payments is going through a great ferment between new methods and increasingly revolutionary innovative systems. In this scenario, the Buy Now Pay Later deserves particular attention, a payment method by installments that mainly involves the world of E-commerce, which came into play after the start of the pandemic. This article shows what it is, how it works, and what opportunities it offers to companies and consumers. 

What Is Buy Now Pay Later, And Why Is It Convenient

The Buy Now Pay Later (BNPL) or “Buy Now and Pay Later” is a type of short-term financing, usually without interest, which – as the name implies – allows you to buy now and pay in the future. The service is offered by specialized companies that manage the operation on behalf of merchants (online or physical), with the promise to merchants that this system encourages the conversion rate and the average shopping cart of customers. The advantage for sellers is clear: with this solution, they can prevent cart abandonment and have more chances of retaining customers, while consumers have the opportunity to extend their spending over time.

The Differences Between BNPL And Consumer Credit

Now let’s see what the Buy Now and Pay Later is not. Although this solution has its roots in consumer credit, the two systems have some distinct characteristics. Consumer credit is a short-term financing system (in the form of deferred payment) that can be disbursed only by banks or financial companies, aimed at supporting people’s consumption or postponing/paying in installments for goods such as cars, motorcycles, or household appliances. 

The service is paid, and to access it, you need some guarantees – albeit limited for long-term loans – such as income and a current account. The Buy now and pay later, on the other hand, is free for consumers and is implemented by actors who integrate the payment phase with the installment phase, thus providing a more streamlined and faster way to access the service. It is specially designed for some product categories (Clothing, Travel, Consumer Electronics) with relatively low spending.

The International BNPL Market

The Buy Now Pay Later has helped to give a further boost to the already growing digital payments market. The Buy Now and Pay Later market is booming, characterized by acquisitions and partnerships, new entries, investments, and new services. The health emergency played a decisive role in this success, accelerating online purchases and searching for more flexible payment solutions to cope with economic uncertainty among consumers.

Most BNPL companies are in the United States, followed by Australia, the United Kingdom, and Singapore. Globally, the most funded players are Klarna (Sweden), Affirm (USA), Zip co (Australia), Uplift (USA), and Iwoca (UK). And this market does not only involve recent players (most of them were born less than ten years ago) and global giants such as PayPal, Visa, Amazon, and Ikea. Regarding purchase opportunities, 97% of BNPL solutions are proposed for online payments.

Still, the presence of solutions also available for the physical world is growing (70%), which mainly exploit QR code/barcodes, links/codes via SMS or email, or – more recently – payment cards issued by the suppliers themselves. The latter option, in particular, is a way for suppliers to become independent from merchants.

The Future Scenario

Therefore, the Buy Now Pay Later panorama is promising, with the possibility that in the coming years, the range of action of BNPL suppliers may expand towards sectors such as marketing or banking. However, some points of attention remain, especially about regulatory aspects still to be outlined. 

For example, it is necessary to define which licenses the actors providing this service must have or what the supervisory obligations are, as well as limit the risks of too much advertising (by BNPL provider or merchant) that may encourage little conscious choices by part of the customers. And it is precisely this last point that poses an excellent criticality for this business, given that it could feed consumer debt and the bad debt of the players themselves.


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