At this point, half-a-year in and with no clearly defined end in sight just yet, the fact that we’re living in a changed world is an undeniable reality. Some of the changes were pretty easily predicted – once the world of physical commerce was shut down by statute, one might have sensibly forecast that the race would go to the players who mostly swiftly pivoted to digital. As infection and mortality rates rose and consumers became more concerned about their health and the health of others, it’s not hard to understand why their interest in contactless payments – tepid at best in a pre-pandemic world – skyrocketed overnight.
But perhaps more unexpectedly, consumers aren’t just looking for a new contactless form factor with which to pay, like a mobile wallet or a contactless car – but a new payment mechanism entirely. When PYMNTS and PayPal surveyed consumers, it was found that a primary factor motivating most of them to shop with one merchant versus another is the availability and acceptance of their preferred payment methods.
PYMNTS’ research suggests that 48 percent of consumers who prefer POS credit (buy now, pay later options) would not buy from merchants that did not offer it. That compares to 34 percent saying they would not buy from merchants at all if QR code-enabled payments were unavailable, 40 percent of consumers who prefer digital wallets and won’t buy from merchants that don’t accept them, and 37 percent who won’t shop someplace unless their contactless card is accepted.
Consumers are increasingly choosing BNPL options at the point of sale or checkout to the extent that its availability determines whether or not they ever even get that far with a merchant. And where consumer demand blossoms, market interest follows – a rule that is particularly obvious in recent weeks, as players of all sizes and descriptions are beefing up their BNPL offerings just in time for the annual holiday shopping season.
PayPal’s Global Push
Installment payment options are not new to PayPal, which launched its first foray into the field with its Bill Me Later service in 2008. But starting this summer, PayPal formally began expanding its installment lineup – first with the launch of Paiement en 4x in France in June, then Pay in 4 in the U.S in August, and Pay in 3 in the U.K. earlier this month.
“We continuously hear from businesses of all sizes that they are looking for trusted ways to help drive sales [and] attract customers without taking on additional costs,” Doug Bland, PayPal’s senior vice president of global credit, told Karen Webster in a discussion shortly before the U.S. launch of Pay in 4. “At the same time, we hear from our customers that they are looking for flexible and responsible ways to pay when they shop. This has all accelerated during the pandemic, and the economic uncertainty has created additional stress for retailers and consumers.”
The launch, he noted, allows PayPal merchants to offer installment payments to their shoppers without any new or different technological integration. And though PayPal’s newest shorter-term variation of installment payments is out in three countries, the goal is to continue its rollout around the world to meet growing consumer and merchant demand.
“The demand [so far] we’ve seen is remarkable — and across all categories of merchants — from the largest enterprise merchants to the smallest mom-and-pop shops,” Bland noted.
Afterpay’s Banking Expansion
Founded in Australia, BNPL startup Afterpay has rapidly grown into one of the best-known names in the game on the global stage in the past 24 months. And now, it seems, the startup is looking to widen its purview beyond retail transactions and move into offering banking services to its large, and highly loyal, consumer base.
Afterpay will partner with Australia’s Westpac Group to introduce its new banking-as-a-service (BaaS) platform, which will offer Afterpay’s 3.3 million users access to checking and savings accounts.
As for how consumers will experience the service, it seems Afterpay will control the entire front-end interaction, while Westpac will handle the direct banking relationships on the back end.
“Together with the power of our retail platform, the latest banking technology from 10X and the support of Westpac, we will begin by offering cash flow management in a simple way,” said CEO Anthony Eisen. “Afterpay is in a unique position to extend and deepen the relationship with our customers and help them to manage their money more seamlessly through savings and budgeting tools. For Afterpay, this is clearly just the beginning as we explore this opportunity globally.”
Affirm Eyes the Public Markets
Founded in 2012 by PayPal co-founder Max Levchin, Affirm was something of an outlier when it entered the market with its POS installment lending product. Eight years ago, installment loans were by and large unknown, particularly in the U.S. market.
Things can change a lot in eight years.
In September, Affirm announced a Series G funding round for $500 million, raising its total funding to $1.3 billion. It also rolled out its latest offering: an interest-free, biweekly payment product for transactions as low as $50. A few weeks prior, the firm announced it would help power Shopify's forthcoming buy now, pay later (BNPL) service, called Shop Pay Installments.
Now, the firm has officially announced it will be going public, and has submitted a draft proposal to the Securities and Exchange Commission (SEC). The number of shares that will be offered and the price range have not yet been determined, according to the release. The IPO will take place after the SEC review process is complete.
It was in July when the PO stories started surfacing and potential valuations of $10 billion were floated.
Levchin, who is the CEO, said at the time that it is important to help businesses get on board with the rising trend of online shopping, as BNPL has become a valuable tool to help budget-conscious consumers find more savvy ways to pay.
Klarna’s Growing Partner Roster
BNPL app Klarna got a big boost from retailer Macy’s earlier this month with the announcement that the department store chain had become an investor in the international payments and shopping service. At the same time came the news that Klarna would be present at Macy’s digital checkout to provide shoppers with the option to pay in four equal, interest-free payments.
“We’re excited to embark on a long-term relationship with Klarna that will help us reach wider audiences looking for seamless alternative payment solutions that provide them with financial control and convenience,” Macy’s Chief Digital Officer Matt Baer said in the announcement.
Macy’s joins a roster of Klarna's 200,000 retail partners worldwide and a U.S. network of nine million consumers. The Klarna app sees in excess of 12 million monthly active users globally.
"Klarna is delighted to partner with Macy’s as the shift to online retail accelerates and the company continues to innovate and enhance its digital offerings to meet evolving consumer expectations, for which smart and flexible payments are essential,” Klarna CEO Sebastian Siemiatkowski said in the announcement.
In the U.S., prior to the Macy’s announcement, Klarna had already partnered with big-name U.S. firms like Sephora, H&M, The North Face and Timberland, among others.
This week, handcrafted goods site Etsy joined the party.
“We’re excited to work with Klarna to expand the number of payment options available to shoppers through Etsy Payments,” Etsy Chief Product Officer Kruti Patel Goyal said in the release. “Klarna will enable shoppers to buy on Etsy with greater financial control and convenience, without additional fees for sellers.”
According to PYMNTS’ October Provider Ranking of Alternative Credit Apps, Klarna is currently sitting in the No. 1 spot.
But as reports increasingly indicate, the race for BNPL dominance is both speeding up and getting more crowded. How long any player can hold onto that top spot, especially going into the holiday season, remains to be seen.
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