“Buy Now, Pay Later” (BNPL) payment platforms have taken the globe by storm in the wake of the COVID-19 pandemic. Consumers welcome the payment flexibility they offer. Retailers are fans because BNPL boosts sales. Traditional payment giants like Visa and Mastercard are launching their own BNPL solutions. The fallout from new competition entering the market and regulators sniffing around could wipe out smaller players, and possibly even impact retail sales.
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One niche of the payment industry is experiencing such an acceleration, fueled by an unprecedented shift to online buying and restrained spending behaviors in the wake of economic uncertainty. This combination — which itself is the result of the economic and social impact of COVID-19 lockdowns — has created an ideal breeding ground for the installment payment market to explode.
Indeed, the segment of the payment industry known as Buy Now, Pay Later (“BNPL”) is booming.
How BNPL Works
The typical BNPL model works as follows: a consumer decides to purchase an item online using a loan offered by a BNPL lender; the BNPL provider pays the retailer and generally receives a commission for facilitating the transaction; the consumer pays the BNPL provider back over time. It’s a digital take on the old lay-away system except that, in this case, the consumer gets the item right away.
This is the model followed by Afterpay, Sezzle, Affirm, Klarna, and numerous other companies in the field. Afterpay allows consumers to purchase products with an interest-free, unsecured loan…