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Thursday, December 10, 2020

Buy-now, pay-later schemes take off

Affirm, a San Francisco based fintech company specializing in buy-now, pay-later (BNPL) solutions, is purchasing PayBright, a leading BNPL provider in Canada, for just over $265 million. The combination unites “two innovators with complementary merchant relationships and deeply aligned cultural values, and creates a payment solutions platform with expanded scale and reach,” the two companies said in a statement.

“As part of a larger, multinational organization, we can help even more merchants attract new customers and provide a greater number of consumers with more control and flexibility in their purchasing decisions,” said Wayne Pommen, president and CEO of PayBright. The transaction is expected to close during the first quarter of 2021.

Affirm is among a growing army of fintech firms supporting BNPL offerings that have emerged as a 21st century iteration of layaway plans. Rather than merchants holding onto purchases until all payments are completed, as is the case with traditional layaway plans, BNPL customers take possession of their purchases immediatel and agree to parse out payments over a short period (typically four to eight weeks), with payments debited from their bank accounts. Retailers pay a transaction fee on each sale; in the case of Affirm, that fee ranges between 2 and 3 percent. Surv Pay, another BNPL service, reported merchants using these services see on average a 15 percent increase in transaction size. Most BNPL services assess consumer finance charges, typically in the range of 10 to 30 percent on an annualize basis; some servicdes do not.

BNPL usage rises as card balances fall

BNPL schemes have existed for years and are gaining favor with younger consumers. Ascent, a service of Motley Fool, recently surveyed consumers and found one-third had used a BNPL service. Among consumers between the ages of 25 and 34, 47 percent had used a BNPL service; among those between the ages of 34 and 44, it was 50 percent.

With uncertainties surrounding the financial fallout from the COVID-19 pandemic, growing numbers of consumers appear to be turning to POS loans in lieu of stockpiling credit card debt. TransUnion reported that credit card balances fell to $723 billion in the third quarter of 2020, a year-over-year decline of 10 percent, and the lowest level since the second quarter of 2017. Experian reported the average consumer credit utilization now stands at 25 percent, down from 29 percent last year, and the lowest rate in 10 years.

Klarna, a BNPL service focused on ecommerce sales, reported that consumer downloads of its app are up more than 100 percent this year. Afterpay, another leading provider, reported BNPL transactions at its retailing clients jumped 87 percent from January through November, while debit card payments posted an 18 percent increase, and credit card payments fell 11 percent.

And while many fintechs offering BNPL have focused on ecommerce, brick-and-mortar stores are cashing in on the trend, too. PayPal's Bill Me Later service was one of the first to market and is the most popular among consumers surveyed by Ascent. Klarna reported that it supports in-store POS loans at more than 60,000 stores nationwide, including H&M, The North Face and Timberland.

“It’s clear that customers enjoy the ability to spread purchases across four, interest-free payments whether they’re shopping online or at a physical store,” Klarna said in a statement. “Retail brands benefit from the ease and convenience of accepting Klarna payments without technical integration.” The company noted that it plans to add “hundreds of the largest and most popular brands” to its in-store service this year and next. end of article

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