BNPL is a win-win-win product which has made it quite popular. Here are three predictions about what it means for fintech.
Amazon AMZN just announced a partnership with Affirm to allow certain customers to check out with the latter’s product, and split up the cost for purchases over installments. Earlier this month, Square SQ announced its $29b acquisition of Afterpay. Of course, installment loans are not new. But what Affirm, Afterpay and the broader Buy Now Pay Later (“BNPL”) space have done is make it an incredibly simple, customer friendly transaction in the digital world. This is becoming a big space. McKinsey estimates that fintechs have already diverted $8-10b in annual recurring revenues, largely from incumbents, with this new approach. In this piece, I want to explore first why BNPL is a win-win-win product which has made it quite popular, and offer three predictions about what it means for fintech. Win-Win-Win BNPL models are unique in that they benefit multiple parties all at once. Customers benefit from a clear, simple and transparent check-out process and loan product. They also offer payment flexibility. One of the key challenges for many customers in the US and around the world is not necessarily a lack of capital, but liquidity crunches – not having the capital at the right time. Installment loans allow customers to manage this, and also pay something back over the course of their enjoyment period. (Of course, too much of a good thing can be bad, and making it too easy to get a loan or over leverage must be monitored). BNPL providers are happy because it offers a unique customer segment at an attractive cost of acquisition (since the acquisition is done by the merchant). Crucially, BNPL benefits the merchant too. BNPL is credited with ecommerce conversion improvement, lowering cart abandonment and, given the longer term relationship in some cases, a higher LTV (e.
