Whither BNPL?

It takes nothing away from the phenomenal arc the buy now, pay later trend is describing across the payments landscape to say that, in essence, it’s something quite old dressed up in modern duds. After all, installment credit in retail has been around for decades.

But the genius of the current trend is that it borrows from both credit and debit and adds a critical overlay of technology to make it an easy and quick decision for consumers to buy—consumers who might otherwise have taken a pass because the transaction would have strained their credit card limit or added too much to their debit card balance.

Adding to the allure of BNPL is that buyers get to take the merchandise home, or have it delivered as quickly as would have been the case with a credit or debit card. And some BNPL players, like Affirm, also make it simple to return the goods.

Speaking of Affirm, it’s cottoned on to that debit card idea—with a twist. The company said last month it’s developing a debit card called Affirm Debit Plus that taps the user’s checking account for installment payments or for payment in full (see the “Trends & Tactics” section in this issue). Affirm’s CEO, former PayPal executive Max Levchin, is so focused on the product that he’s testing it personally.

So it’s a mix of a very old idea with some very new twists and some quite snazzy technology that dispenses with the one-to-one relationship between consumer and merchant and replaces it with a built-in, automatic one-to-many link. Credit and debit cards did the same thing a few decades ago. Will BNPL eat into credit card usage—or, for that matter, debit card spending? Is it a risky bet for the providers?

Taking the second question first, it doesn’t look like there’s a definitive answer yet. BNPL is a child of the pandemic. It was around before Covid struck, but it drew its rocket fuel from the huge crowds of consumers who flocked to the Internet to do their shopping when physical stores shut down or converted to curbside pickup. That may suggest that, to the extent these users are also credit card holders, the risk profile is no worse than it is for your “what’s-in-your-wallet” card.

The first question is trickier. Visa, Mastercard, and Amex aren’t reporting any drain on their spending volumes so far, but those volumes are enormous, and BNPL usage, though growing fast, isn’t that impactful yet. And the card networks have developed their own answers to BNPL. Visa even has an API for it.

So we’re reduced to a cliché: Watch this space.

—John Stewart, Editor, john@digitaltransactions.net