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Illustration: Shoshana Gordon/Axios

Buy-now-pay-later, or BNPL, is one of the fastest-growing areas of finance.

Why it matters: The biggest player in the space, Klarna, on Thursday announced that it has raised $639 million at a valuation of $45.6 billion — an astonishing quadrupling in value in just eight months.

  • For decades, credit cards have been the only practical way to borrow money to pay for big-ticket items that aren't quite as expensive as a car. Consumers liked credit cards for their convenience — and banks liked them for their high-interest rates. Now, finally, those cards have a competitor.

By the numbers: Klarna reported that its number of American customers is up 118% year over year; in the first quarter, it had $18.1 billion of transaction volume, mostly in Europe.

  • Afterpay, its largest competitor, saw volume of $4 billion in the quarter, while Affirm had $2.3 billion.

Those numbers are tiny compared to credit card volumes, which means that potential growth remains enormous. Mastercard, Visa and American Express between them had $3.5 trillion of volume on their credit cards in 2020, just in the USA.

The big picture: BNPL has clear advantages, for consumers, compared to credit cards.

  • It's often offered by merchants as a way to buy items interest-free.
  • It's easy to use BNPL only for major purchases, and not for day-to-day spending.
  • In the cases where you do pay interest, it doesn't compound as it does on credit cards.

How it works: Whenever you pay for an item on a credit card, you then have to pay interest on that purchase unless you make sure to pay off your credit card in full at the end of the month.

  • With BNPL, you're never defaulted to making interest payments. Either there's no interest at all, or else the interest rate is clearly stated upfront.

The bottom line: BNPL will never be as profitable as credit cards. But that hasn't stopped founders like Klarna's Sebastian Siemiatkowski from becoming billionaires.

Go deeper

Updated 15 mins ago - Health

CDC: Vaccinated people in COVID hotspots should resume wearing masks

CDC director Rochelle Walensky and top infectious disease expert Anthony Fauci at a Senate HELP committee hearing. Photo: J. Scott Applewhite-Pool/Getty Images

The Centers for Disease Control and Prevention issued updated guidance on Tuesday recommending that vaccinated people wear masks in indoor, public settings if they are in parts of the U.S. with substantial to high transmission, among other circumstances.

Why it matters: The guidance, a reversal from recommendations made two months ago, comes as the Delta variant continues to drive up case rates across the country. Millions of people in the U.S. — either by choice or who are ineligible — remain unvaccinated and at risk of serious infection.

Olympics medal tracker

Data: International Olympic Committee; Chart: Connor Rothschild/Axios
Bryan Walsh, author of Future
1 hour ago - Politics & Policy

U.S. students fell 4 to 5 months behind during pandemic

An empty classroom in Pinole, Calif. Photo: David Paul Morris/Bloomberg via Getty Images

Elementary school students in the U.S. ended the school year four to five months behind their expected level of academic achievement, according to a new report.

Why it matters: Months of school closures and often inferior remote education eroded what schoolchildren would have learned since the pandemic began, and caused some to go backwards.