The Buy Now Pay Later (BNPL) Evolution And Why Credit Card Companies Must Adapt

Last month, Square said it would pay $29 billion for Australian buy now pay later startup, Afterpay.  Amazon put Affirm on great party when it announced a partnership, rallying the stock of the company. Now, PayPal, which just announced that it would also become a stock trading platform (that makes sense since in America they have made buying stocks to be a game thanks to Robinhood. People buy because they are bored and need to have fun!) is hitting the new hot category with $2.7 billion to close out Japan’s Paidy.

U.S. payments giant PayPal Holdings Inc announced Wednesday it would acquire Japanese buy now, pay later firm Paidy in a 300 billion yen ($2.7 billion) principally cash deal, to expand its business in Japan.

Japan is the third largest e-commerce market in the world, presenting the opportunity for PayPal to expand its domestic relevance in the payment business in the East Asian country market.

The deal, which is expected to be concluded in the fourth quarter of 2021, will be minimally dilutive to PayPal’s adjusted earnings per share in 2022. It will also complement PayPal’s existing cross-border ecommerce business in Japan.

But you know those in trouble: credit-card companies. If this buy now pay later trajectory continues, some credit card companies will struggle as banks which power them will have  fewer customers. Essentially, these young people are not paying with their cards  and that is a problem for credit card firms (and their partner  banks).

If you run a credit card business and no one pays attention to what your bank is offering because right at the point of sales, someone is offering customers  the opportunity to buy now and pay later at zero or negligible interest rate, you have a real challenge ahead. 

This is a new dimension of fintech which nations with data are enjoying. It would be long before Africa can participate at scale on this, unfortunately.  In Nigeria, there is currently no fintech or bank offering this solution. Yes, irrespective of whatever they call it, all the solutions in Nigeria come with interest payments. In the US, BNPL comes with zero interest over the agreed period, and the deal closes in seconds with no paperwork!

So how do BNPL make money? Merchants cover the costs as expected since the companies are not charities. Typically, merchants pay a BNPL charge between 2 to 8 percent of the purchase amount. While this is a little more than what merchants pay credit card companies (as merchant fees), the extra advantage is that BNPL brings volume which can offset that extra cost to merchants. So, if people know they can buy your product and pay over four months at zero interest, it could stimulate more buys.

PayPal Buys Paidy in A $2.7 Billion Deal to Expand Buy Now Pay Later Service

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