The Top Companies Revolutionising Buy Now Pay Later

How does buy now pay later work?

BNPL is a form of short-term financing, sometimes called point of sale instalment loans. 

Instead of paying the entire cost of a purchase at the online checkout or till, customers can pay in multiple instalments. With BNPL, customers typically pay a proportion of the cost upfront (usually around 25%), and then the BNPL company pays the retailer the rest. Customers then repay the BNPL provider through a series of interest-free payments, over a specified period of time. 

Once a customer has selected the BNPL service at checkout, providers will do a quick check and approve them for the sale in just a few minutes. BNPL providers set a credit limit for each customer, based on their own algorithms and a user’s credit rating. Use of BNPL payment plans doesn’t currently impact a person’s credit score, unlike traditional credit cards. And as the credit checks are less thorough, it’s easier to be approved for BNPL than other forms of credit. 

BNPL has been called ‘the future of millennial finance’, being used to spread the costs of shopping, which can be especially useful for people who need to complete a purchase ahead of payday. Instalment plans and payment terms differ depending on the BNPL provider, but customers usually have up to four months to pay it back, often through weekly, fortnightly or monthly repayments. 

The repayment plan usually consists of interest-free instalments and can be completed through various payment options, including bank transfers or automatically through a customer’s debit or credit card. But while BNPL can offer users a more affordable and flexible payment method, customers may also be charged considerable amounts for late payments.

Who are the global BNPL industry leaders?

Swedish fintech Klarna is widely acknowledged as one of the major players in the global BNPL sector, having pioneered the trend when it was founded in 2005. Klarna currently has around 8m customers in the UK and works with more than 6.5k retailers. Klarna describes its BNPL offering as interest and fee-free, meaning it doesn’t charge for short-term products (products where the repayment period is 12 months or less) and has no hidden fees. In June 2021, the company launched an app for UK users to shop at any online retailer. This means users can now split any online purchase into instalments, even if the retailer hasn’t partnered with Klarna, for instance when shopping on Amazon.

Meanwhile, US startup Affirm is another leader in the BNPL industry. Like Klarna, Affirm doesn’t charge late fees for its off-card financing solution. In February 2021, Affirm announced its own debit card which offers a Pay in 4 feature. Increasing their reach, Affirm partnered with both Amazon and Apple in August 2021 (only to select customers right now, but it’s planning to extend this over the next few months). This will give users the ability to split purchases of $50 or more into monthly instalments. 

Likewise, Australian firm Clearpay (called Afterpay in Australia, New Zealand and the US) is another global leader in the buy now pay later services space. It has a mobile app which customers can shop from or, alternatively, users can select the Clearpay payment method option at checkouts. Like most BNPL providers, Clearpay doesn’t charge for products where the repayment period is 12 months or less. The digital payments company Square (founded by Twitter CEO Jack Dorsey) has announced it will acquire Clearpay in early 2022, for $29b.

Then there’s online payments giant PayPal, one of the biggest players in the fintech industry to launch a BNPL service. In October 2020, the firm’s ‘Pay in 3’ feature was unveiled, allowing customers to make interest-free monthly payments, with no set-up fees. In September 2021, it also made the decision to scrap late fees, in order to compete with Klarna and Affirm.