Buy now, pay later is coming to a retailer near you
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Buy now, pay later (BNPL) is one of the hottest parts of fintech, built on the idea that a simple pay-in-installments plan doesn't really feel like a loan — especially when it comes with 0% interest.
The big picture: Now that idea has driven Square to acquire Australia-based BNPL giant Afterpay for about $32 billion in stock, based on where its share price closed on Monday.
Why it matters: Consumers unwilling or unable to open traditional credit cards can still be persuaded to borrow money if the marketing message is attractive enough.
- Market leader Klarna recently bought an influencer marketing company and has used Snoop Dogg and A$AP Rocky as pitchmen. Its chief marketing officer told Reuters last week that introducing a new way to borrow money should be a bit like "when Nike drops a new sneaker."
- Square has already bought Tidal, Jay-Z's struggling music-streaming service, and has seen the growth of its Cash App turbocharged by hip-hop stars and other social media influencers.
What they're saying: "What sets BNPL apart from traditional shopping is how it repackages debt into a form of self-care," writes the Guardian's Kitty Drake.
- Not mentioned in the marketing campaigns: The way in which racking up BNPL obligations can result in consumers being unable to obtain a mortgage, per an investigation by Refinery29.
How it works: Europeans, who have traditionally eschewed credit cards, still want to buy items online even when they don't have the full amount available in their bank accounts. BNPL now accounts for 7.4% of European e-commerce transactions, per FIS Global.
- Investors are assuming that younger U.S. consumers will also adopt BNPL, although the U.S. market share is still very low, and much of it is concentrated in the relatively unique relationship that Affirm has with Peloton.
- Markets without broad credit card adoption are in many ways even more attractive. Indonesia's market leader Kredivo, for instance, is going public at a $2.5 billion valuation.
What's next: Soon, whenever you buy a big-ticket item at a store with a Square terminal, you'll be able to opt to pay for it in installments. Taken directly out of your Cash App account, of course.
