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    eCommerce Buy Now Pay Later is Trending

    The Buy Now Pay Later market has never been so hot with brands making headlines every week. Klarna’s valuation has skyrocketed to $45 billion, and Square just acquired Australian Buy Now Pay Later solution Afterpay for $29 billion in the first week of August 2021.

    Why is Buy Now Pay Later so popular? What makes it so attractive for merchants? Who are the top solution providers?

    At OneStepCheckout we identified this trend would be big as a growing number of our customers, Magento merchants, are integrating BNPL offerings into their Magento 2 checkouts. For you, we thought we’d compile insights so you understand what it’s all about.

    Buy Now Pay Later, the new popular payment option for online and offline purchases

    First, let’s understand what Buy Now Pay Later (BNPL) is.

    BNPL is a payment solution that merchants can offer and allow consumers to get their items straight away but only pay at a later stage. Most often:

    Interest-free

    The first new and very attractive part of this payment method is that consumers often don’t have to pay interest on installments. That’s why adoption has been fast.

    No financing middleman

    The second new element is that, unlike short-term financing, the agreement often takes place directly between the consumer and the retailers, without the involvement of a third party managing the loan.

    Although new technology allowed mobile apps to create a smooth registration process, BNPL solutions can also be used in physical stores. In fact, in the United States, an equal number of BNPL loans are taken up in physical stores vs. online.

    Buy Now Pay Later was built for millennials

    Buy Now Pay Later is built for consumers who saw their parents and relatives suffer during the 2008 subprime crisis and who suffered themselves during the economic crisis due to the COVID-19 pandemic.

    These consumers hate credit, in particular the high fees and the revolving nature of the plans. This is confirmed by recent studies conducted by the Mercator Advisory Group and the Ascent by the Motley Fool.

    Frequent BNPL users are young and tech-savvy

    COVID-19 is a key driver for the adoption of BNPL 

    As of March 2021, Ascent reported that 56% of Americans have used a Buy Now Pay Later service. Moreover, half of the people who have never used buy now, pay later solutions are at least somewhat likely to use them in the next year.

    The pandemic’s economic hardship boosted the trial and repeat usage of BNPL.

    Respondents cite related reasons as key drivers for choosing BNPL, including:

    Late payment risks

    Over a third of US Buy Now Pay Later users say they’ve made a late payment or incurred a late fee. Consumers aged 18 to 24 are the most affected with almost 50% of them not paying on time with 43.80% saying they were “somewhat” or “very” likely to make a late payment in the coming 12 months!

    Only 30.91% of consumers say they’re very unlikely to be late, while 17.74% say they’re somewhat unlikely to be late.

    Habit is the key barrier against the usage of BNPL

    Among the US consumers who said they will not use Buy Now Pay Later solutions, the top reasons are:

    Buy Now Pay Later drives an increase in checkout conversion, repeat purchases, and average transaction values (ATV)

    Because of its flexibility and convenience for shoppers, merchants who offer Buy Now Pay Later solutions get real advantages vs those who don’t.

    Based on promises and results quoted by the various BNPL players, merchants can expect an increase in important KPIs:

    In addition to this, merchants benefit from even more advantages:

    Top eCommerce Buy Now Pay Later Solutions

    With half of the Americans using BNPL and total lending forecasted to exceed 100 Billion USD according to the Mercator Group, there is a lot at stake and the biggest market opportunity for BNPL players.

    According to Ascent surveys, 48% of respondents said they use PayPal, while 35.6% said they use Afterpay and 25% reported using Affirm.

    The Most Popular eCommerce Buy Now Pay Later Solutions


    PayPal Logo

    PayPal (NASDAQ: PYPL), headquartered in San Jose, was created in 2005. The company spun off from eBay Inc and went IPO on its own in 2014. 

    PayPal already reached 400 million active accounts globally and is present in almost every country in the world with TPV (total payment volume generated through PayPal) exceeding 1 trillion USD for 2021.

    Bill me Later/ PayPal Credit

    In 2008, PayPal acquired Bill Me Later, a Maryland-based startup that offered a deferred payment and financing option through a network of well-known retailers such as Apple, Zappos, and Walmart. Today this service is now branded as PayPal Credit and the open-ended line of credit is managed by another bank.

    Screenshot of Magento store with OneStepCheckout and PayPal Credit

    PAYPAL Pay in 4

    PayPal launched its “Pay in 4” product in 2020 in the United States enabling merchants to get paid upfront while enabling customers to pay for purchases between $30 and $1,500 over a six-week period.

    Consumer offer:

    In Q4 2020 the product was used by 3 million unique consumers generating $750M payment volume through 250K unique merchants including Uniqlo, Best Buy, Coach, Aldo, Bed Bath and Beyond.

    PayPal’s pay in 4 key success factors are:

    Here’s a video on how it works:


    Affirm Logo

    Affirm (NASDAQ: AFRM) was founded in 2012 and is headquartered in San Francisco. 

    Affirm offers short term credit as follows:

    Merchants that accept Affirm include Walmart.com, Expedia, Adidas, Neiman Marcus, Casper, and Pottery Barn.

    Affirm value proposition to merchants:

    Affirm’s business performance: Gross merchandise volume (“GMV”) for the second quarter of fiscal 2021 was $2.1 billion, i.e. +55% when compared to the second quarter of fiscal 2020.

    Affirm’s global expansion: Acquisition of PayBright Inc in January 2021 for its presence on the Canadian market.


    Katapult Logo

    Katapult (NASDAQ: KPLT) was founded in 2014 and is headquartered in New York. Their team is dedicated to providing omnichannel lease-to-own solutions with no late fees, ever. They stand out for their ability to serve shoppers with no credit or poor credit. Katapult estimates that 65% of shoppers aren’t eligible for traditional BNPL services, however, they can service more than half of those consumers.

    Consumer benefits of Katapult:

    Merchants benefits of Katapult include:

    Katapult has partnered with merchants such as Wayfair, Lenovo, Purple, and Motorola. In Q1 of 2021, Katapult received $82 million in revenue, up 88% YoY. Net income was $8.1 million, a 120% increase YoY. Given their IPO in June of 2021 and their official partnerships with eCommerce platforms like Magento/AdobeCommerce, they have been earning more attention in the market this year.

    Here’s an in-depth interview with a member of the Katapult team, discussing the growth of BNPL:


    Klarna Logo

    Klarna is a Swedish company founded in 2005. It operates in 20 countries and reported 90 million active consumers globally as of May 2021 with 2 million transactions per day.

    As of June 2021, with its latest funding round of $639 million and valuation of $45 billion, it’s the highest-valued private fintech in Europe according to Techcrunch.

    As of January 2021, 15 million US consumers chose to shop with Klarna, which is the BNPL partner of choice for 20 of the top 100 US retailers including Macy’s, Etsy, Sephora, Saks 5TH, Lululemon, Adidas and Gamestop.

    Klarna offers three products for the US market:

    They also actively promote their Vibe Reward Club by offering $5 to each member who signs up so as to grow and nurture an engaged pool of shoppers that will shop at their merchant partners.

    The Klarna App offers added value with the following functionalities:

    Klarna’s value proposition for merchants:

    Klarna’s pricing to US-based merchants includes:

    What stands out with this company is its branding and advertising strategy and execution. They have been disrupting all the visual and tone of voice codes in the financial services category by using a pink color, provocative headlines, and ambassadors such as Snoop Dogg and Lady Gaga through 360-degree communications channels including offline media such as TV, and print outdoors.

    Here are some examples:

    Klarna Outdoor Advertisement

    Source: https://www.klarna.com/international/press/klarna-launches-new-campaign-to-celebrate-consumers-support-regulation-and-challenge-the-status-quo/

    Klarna Print Advertisement

    Source: https://www.newsworks.org.uk/creative-gallery/156361


    Afterpay Logo

    This acquisition made huge headlines as Square (NYSE: SQ), Jack Dorsey’s fintech company announced it will acquire Australian Afterpay (ASX: APT) with $29 billion in stock.

    Afterpay was founded in Sydney in 2015 and operates in 3 continents: APAC (mainly Australia & New Zealand), North America (the United States and Canada), and Europe under the Clearpay brand in the United Kingdom.

    As of June 30, 2021, Afterpay serves more than 16 million consumers in the US and 75,000 merchants globally.

    One of Afterpay’s key selling points to businesses is the use of their channels to drive traffic and new visitors, boasting 27M referrals to their merchants in 2020. 

    Well-known US-based stores offering Afterpay, whether in-store or online, include Shein, Dillard’s, The Children’s place, Pandora, Adidas, Levi’s, and Ulta Beauty.

    Afterpay’s consumer product: 

    Afterpay’s value proposition for merchants:

    Merchant pricing is not available on their website, but various sources mention a 4 to 6% transaction fee.


    Zip Logo

    Quadpay is a New York-based fintech company acquired by Australian Zip Co Ltd (ASX: Z1P) founded in 2013 in Sydney. 

    As of December 31st, 2020, ZipCo has 5.7M active consumers, 3.2M of which are in the USA, a 191% increase YoY, with total app downloads of 4.1m, a 310% increase YoY.

    Quadpay is available at most US department stores i.e. Target, Walmart, Costco, Wholefoods, and hot brands among Millenials such as Herschel, Asos, Zara, Mac cosmetics, and other established brands such as Sears, Fanatics, and Newegg.

    ZIP is currently launching a global rebrand and the Quadpay brand will be fully replaced by the Zip brand on August 16th, 2021.

    Consumer product:

    The value propositions for merchants:

    Merchant pricing: not disclosed but the help page states a set percentage and small transaction fee.


    FuturePay Logo

    Futurepay is an eCommerce market-focused company part of New Oak Finance, based in New York that leverages its expertise and capabilities in credit underwriting, asset management, and capital markets access. The larger group also caters to another market segment: advancing funds on already earned wages through their Orbispay offering.

    According to their LinkedIn page, the company was founded in 2019 with less than 50 staff today.

    FuturePay’s consumer product: My Tab™ is really positioning itself for consumers who don’t like credit cards but still want the flexibility to pay for their purchases at a later stage, at their own pace.

    The value proposition for merchants:


    Sezzle Logo

    Sezzle was founded in 2016 in Minnesota and is traded on the Australian Stock Market (ASX: SZL). 

    One of their key differences is their “Public Benefit Corporation” status and B Corp Certification. That means that a big part of their business is dedicated to instilling a purpose and creating a socially responsible future of payments and retail. Initiatives include setting up scholarship funds, aiding the environmental and education systems through nonprofits, and choosing to work with partner companies that share a common goal to benefit communities at large.

    Sezzle has operated in the US and Canada since 2019 and is planning an expansion into India and Europe.

    Sezzle’s Consumer products:

    Sezzle: 

    Sezzle Up!:

    Sezzle’s 2020 annual report states that Underlying Merchant Sales grew 251% to reach $856M. 

    As of the end of June 2021, Sezzle reported it reached 2.9 million active consumers (+95.5% YoY) and over 40,000 merchants (+ 150% YoY), including Target, GameStop as well as Pure Hockey, the largest hockey retailer in the US.


    SplitIt Logo

    Splitit (ASX SPT) is an Australian-based company founded in 2012 with a presence in 30+ countries.

    Their product is the only solution that lets consumers use their existing credit cards to pay in monthly installments. That means:

    The claimed merchant benefits are:

    Innovation

    In Q1 2021, the company recorded:

    Customers of Splitit include Emma, Simba (mattresses), Vestiaire Collective.


    Opypay Logo

    Openpay (ASX: OPY) is an Australian company founded in Melbourne.

    They recently launched their US operations (opy.com/us). As of the writing of this article,  their website is only focused on merchant acquisition.

    Consumer offering (based on what they offer in Australia and the United Kingdom):

    Merchants benefits:

    They offer a key difference to other BNPL solutions as their consumers are more mature, have more disposable income, and make bigger purchases.

    In order to give you a better representation of what shoppers see, here is how an Openpay integration with OneStepCheckout looks:

    OneStepCheckout Screenshot with Openpay Payment Method

     

    If you enjoyed this article and want to know more about Buy Now Pay Later trends in other big eCommerce markets such as the United Kingdom, Australia, or the Netherlands, check out our Full BNPL review here.

    About The Author
    Thien-Lan Weber
    CMO, OneStepCheckout

    Thien-Lan worked for 10 years in retail and consumer goods as a Management Consultant then as a Brand Manager and another 10 years in eCommerce with various roles at eBay and PayPal. Since 2015 she’s been heading up Strategy, Sales, and Marketing at OneStepCheckout, the leading Magento extension that reduces cart abandonment by improving merchants’ checkout processes. She is a frequent guest author, sharing best practices about checkout conversion, Magento market reviews, and Magento case studies. Thien-Lan holds a Master’s Degree from HEC Paris School of Management and is based in France after having worked in various countries in Europe, North America, and APAC. In her spare time she loves playing tennis, she is a keen drummer in a rock band, and enjoys spending quality time with her two boys and husband.

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