Credit card or BNPL: how does the POS lending industry develop

Today millions of shoppers use Buy now, pay later (BNPL) to fund their purchases. And the lender choices are more diverse than ever — Klarna, Affirm, and Afterpay are just a few of the many providers in the industry. Big companies are joining the ranks as well: PayPal launches its product, Amazon partners with Affirm, and Square buys Afterpay for $29 billion. Even our neobanks are planning it: at least Oleh Horokhovskyi wrote about it in the acquiring announcement post.

More and more consumers are relying on flexible payment options such as credit and BNPL. The growth of the service took place amid a double trend caused by the pandemic — an e-commerce boom and an increase in demand for loans. According to a study by Marqueta, 35% of users said they were using BNPL for the first time during the coronavirus crisis. More than half of respondents (54%) say that BNPL will soon replace the use of credit cards. Service providers advertise their services as the best alternative to credit cards. 7 out of 10 consumers prefer BNPL options due to affordability and ease of management. But critics worry that many people are spending more than they can afford, and some don’t even realize they are running into debt.

There is a financial strain from Covid-19 in all countries, and flexible payment options help make ends meet. It is possible to buy essentials when you need them and still pay for them when you have the opportunity. However, the growth in BNPL usage has been driven not least by M&A and venture capital investments.

Square’s acquisition of Afterpay was a very high-profile takeover in the payments market. Upon purchase, Square plans to integrate Afterpay into the merchant ecosystem and Cash App Square. This allows small sellers to offer installment plans at checkout and provide Afterpay consumers with the ability to manage their installment payments directly in the Cash app.

Klarna, one of the world’s leaders, is now valued at $45 billion after its last round of funding in June. The round was led by the Vision Fund. Existing investors Adit Ventures, Honeycomb Asset Management, and WestCap Group also attended. The new estimate is 47.3% higher than Klarna’s estimate in the previous round of funding in early March. Then the company raised $1 billion.

Discover invested $30 million in Sezzle to bring BNPL capabilities internally, and Apple announced its development of a BNPL solution with Goldman Sachs. We can recap many more transactions and events in the market, but you get the point. This area is experiencing a peak of interest from both consumers and investors. Ukraine is still at the initial stage of adapting the BNPL solution. But considering the pace of development, our financial habits may soon change a lot, especially given the strong tradition of lending.

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