Buy Now Pay Later

A New Way of Borrowing Leads to Credit Expansion

Henry Chapman, Research and Insights Analyst


What is Buy Now Pay Later (BNPL)?

Buy Now Pay Later is a new lending practice that has exploded in popularity across eCommerce. BNPL lets consumers split payments for items across various retail industries, from groceries to plane tickets, into multiple payments (usually 4 or 5).

Firms specializing in BNPL like Klarna and Affirm administer short-term, interest-free loans to consumers. They profit by charging merchants large transaction fees, much like a traditional credit or debit card company. This brief outlines the trend, points out its benefits, and highlights its possible pitfalls.

Key players in the Buy Now Pay Later space

BNPL companies have emerged over the last 10 years. Factors that led to their appearance in eCommerce were the low interest rates and tighter creditworthiness checks that followed the Great Recession. Klarna, founded in 2005, is the largest player in the space, followed by AfterPay which was founded in 2014. Apple launched a BNPL business in June 2022. Apple’s emergence into the space caused other BNPL company share prices to crater as skepticism grew about their ability to compete with the tech giant.

Image 1 - Emergency of Buy Now Pay Later Companies

Figure 1: Post volume graph from Atlas showing the explosion of interest online relating to major BNPL firms. Apple announced a new BNPL business in June 2022.

Buy Now Pay Later by consumer sector

BNPL providers started by offering their lending services for the online retail of electronics (i.e. phones, computers, tablets, and televisions). This later expanded to the fashion and cosmetics industries, where it lends itself quite successfully to impulse purchases.

BNPL is valued by merchants because it reduces cart abandonment, and lessens the effects of sticker shock.

Image 2 - Buy Now Pay Later Sector Penetration By Month

Figure 2: BNPL penetration by consumer sector. BNPL initially emerged as a way to pay for electronics, but transitioned to the fashion and cosmetics industries.

Why customers love it

Consumers love BNPL because of its convenience. BNPL providers give customers interest-free loans with no fees attached with their purchase. As long as the shoppers pay their bills on time, it seems like BNPL offers them an easy, friction-free way to shop, while providing them the flexibility to split up their payments.

Image 3 - BNPL Interest Free

Figure 2: BNPL penetration by consumer sector. BNPL initially emerged as a way to pay for electronics, but transitioned to the fashion and cosmetics industries.

Warning signs around BNPL sentiment as economy turns towards recession

Prior to January 2022, consumer sentiment around BNPL was universally positive. The US Federal Reserve set interest rates at near zero levels. This meant BNPL providers could acquire cash for lending at extremely low rates.

However, as inflationary pressures increased since February 2022, BNPL sentiment has dropped significantly. Much of that sentiment drop has to do with the changing economic climate in the United States. The US Federal Reserve is hiking interest rates, raising the cost of BNPL provider business practices.

Image 4 - BNPL Sentiment

Figure 4: Sentiment graph for BNPL providers. Sentiment for BNPL peaked around January 2022 before dropping over the next six months.

BNPL graph showing related concerns

As sentiment shifts, BNPL’s glossy image is tarnished as consumers recognize it for what it is: another form of debt. Infegy Atlas data shows a high correlation between conversations relating to BNPL and debt hotlines, the Consumer Finance Protection Bureau, and surprise around hidden payments.

Image 5 - BNPL Concerns

Figure 5: Negative word cloud for BNPL providers. Note the appearance of "debt," "protection bureau," and other terms that highlight the risks associated with it.

Concerns emerge in press

As venture capital money dries up due to changing market conditions, and with consumer confidence dropping, BNPL firms are having a harder time with valuations. Moreover, concerns have emerged about shoppers' ability to pay back debt. This trend looks likely to continue as the US combats more inflationary challenges.

Image 6 - BNPL Concerns Around Journalism

Figure 6: Newspaper clippings showcasing the debt default risks associated with using BNPL products.


Given the concerns around rising interest rates, inflation, and a looming recession, many worry about the BNPL space. Infegy Atlas has tracked a sharp decrease in post volume since BNPL peaked in December 2021. Moreover, BNPL sentiment was initially strong, but has decreased substantially over the last several months. This concern should continue, especially if recent economic uncertainty continues into the foreseeable future.

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