Buy Now Pay… Now?

During this year’s online Christmas shopping you may have noticed a new button at checkout from your favourite BNPL providers – “Pay Now”.

The pay in full option allows shoppers to initiate a direct bank transfer without pulling out a credit card. Both Klarna (through their acquisition of Sofort) and Affirm have launched theirs.

This begs the question… umm why?

Customer preference. “I thought the whole point of BNPL was to spread your payments out over time?” Merchants attract more shoppers, shoppers receive interest free loans. It’s a win-win.

Correct. But not all shoppers are looking to defer payments in installments or to the end of the month on their credit cards. By offering a one-click pay in full option, BNPLs widen their net to shoppers not interested in financing.

Regulation. As with all financial products, regulators are sensitive to marketing; particularly ensuring that consumers are not being encouraged to take on more than they can afford. A pay in full option sends a strong sign to both regulators and consumers that BNPLs are completely aligned with any payment preference.

Banking > Lending. BNPLs are expanding beyond POS finance to a full banking suite of products:

• Klarna recently launched virtual cards in the UK.
• Affirm launched a cash-back savings account.
• Afterpay is now part of the artist-formerly-known-as Square (Block), and will be integrated into their suite of small business banking solutions.
• PayPal has gone the opposite way, starting with checkout and expanding into BNPL themselves and through their acquisition of Paidy in Japan.

All four of these companies are converging around an online banking model that goes well beyond payments and lending.

Payment processing. Payments are a zero-sum game. At checkout, there can only be one winner per transaction. A shopper either pays with cash, cards, or more recently installments (over simplification). Visa and Mastercard have expressed concern that BNPL eats into the demand for revolving credit, and in turn their payment rails. A pay now option will take even more traffic away from these rails, allowing BNPLs to compete head to head with the payment titans.