What is Buy Now Pay Later?

By: Dylan Jacobson
September 16, 2021

The Buy Now Pay Later Revolution

It’s hard to ignore a splash this big. Buy Now Pay Later is an innovative new lending trend that has quickly spread in the financial services world. Among those leading the recent charge in the implementing this product into their portfolio are Goldman Sachs, with their $2.2B acquisition of Greensky, and Amazon’s recent partnership with Affirm to provide Buy Now Pay Later services at check-out.

But how does a buy now pay later transaction actually work? When the consumer buys a product, the retailer might let them pay with a few installments rather than pay the total price up front. Interest and fees are not charged for this. The buy now pay later company actually pays the merchant a smaller amount for the item than the customer, who then makes the installment payments to the buy now pay later company.

The Benefits

Buy Now Pay Later has been a critical success with consumers. The ability to have your cake and not worry about clean-up until months later is certainly tempting. Psychological pricing suggests that smaller sums of money are easier for consumers to digest while making a decision to purchase a product. Similar to how retailers put a price of $1.99 on an item instead of $2.00, our minds associate the cost closer to $1 than $2. Here’s some other reasons consumers are excited about Buy Now Pay Later:

  • Consumers are usually not charged any fees up front. Buyers can walk out of the store without a single dollar removed from their wallets.
  • Different from a traditional loan, buy now pay later does not accrue interest if payments are met. Terms for a late or missed payment however may include interest and/or a late fee.
  • Usually buy now pay later will have no impact on your credit score, unless a payment is missed.

A recent study from Ascent shows that 56% of Americans have used a buy now pay later service, tempting retailers across the globe to become a player in the space. Here are some benefits to retailers offering the service:

  • Consumers spend more with buy now pay later. According to Forbes, nearly half of consumers said they spend 10%-40% more when using buy now pay later vs a traditional credit card.
  • Buy now pay later is a hit with younger consumers. Afterpay did a study that showed 69% of millennial shoppers were likely to become customers if buy now pay later was an option.
  • Since consumers are willing to buy more than they usually would, retailers are able to more easily sell their products and merchandise.

The Lending Landscape

Fintech is here to stay. Its emergence has disrupted a market which has been dominated by traditional firms. More innovations like buy now pay later will surface to provide financial options to consumers who demand more financial flexibility in a post-covid world. In order to keep up with the ever evolving lending landscape, LoanPro has made it easy for lenders to service their portfolios and add new products such as buy now pay later, usually through a simple configuration, and provide customers with a positive, streamlined experience.

If you would like to know more about how LoanPro supports buy now pay later lending, our article on the topic shows how lenders can configure those accounts in our software.