US Buy Now Pay Later Competitive Landscape

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In the US, the buy now pay later (BNPL) usage has posted strong growth in recent quarters. Though, the US is the largest retail market globally with over US$5 trillion in retail spend, and is a key e-commerce market, it is still at a very early stage in its BNPL journey.

With the entrance of many foreign players in the market, competition in the BNPL market in the US has become intense. Some key players operating in the market include Afterpay, Klarna, PayPal, Affirm, Sezzle, ZipCo (acquired QuadPay), Splitit, and others.

In terms of active customers, Afterpay which launched in the US in 2018, reported highest active customer base of 6.5M in the US by the end of September 2020. Similarly, Affirm recorded 3.6M active customers as of September 2020, while Klarna reported 2M monthly active users in the US.

Despite COVID-19 outbreak, consumers continued to increase their retail spend. Also, the spending via BNPL continued to rise. According to PayNXT360’s Global BNPL Q4 2020 Survey, BNPL spending has grown in the range of 70-110% over the last four quarters across key global markets. While millennials continue to dominate BNPL spend in value terms, other generations are catching up. Additionally, it is supported by expedited development of online offerings due to the pandemic.

To compete in the BNPL market, PayPal expanded it Pay Later solutions by launching Pay in 4, an installment credit option which allows customers to pay in 4 installments without any interest, in September 2020. The launch strengthens its existing solutions including PayPal Credit (revolving credit line) and Easy Payments.

PayPal charges merchants a fixed base fee plus 2.9% of the transaction value. While, Afterpay charges merchants a higher payment processing fee which is 5% of the transaction cost. Also, Affirm charges a relatively high interest rate of up to 30% based on customer’s creditworthiness as well as charges a merchant fee. Though PayPal has been late to the BNPL market, its lower fee to merchants and no interest could be appealing to customers. Also, PayPal could leverage its existing merchant and customer base to quickly gain a strong foothold in the BNPL market.   

Although online retail continues to accelerate, consumers still enjoy in-store experience. To cater to this trend, market players have started offering in-store BNPL offering. For instance, Afterpay unveiled its in-store BNPL solution in the US in October 2020 which will allows users to pay via a virtual, contactless card, stored in digital wallet and Afterpay card. Following this, in November 2020, Klarna extended its in-store payment services in the US to over 60,000 stores.

Moreover, to encourage customers paying on time, companies are launching loyalty programs to retain customers. For instance, Klarna launched Vibe, no-fee loyalty program that rewards consumers who make regular payments, in June 2020. Currently, Vibe has 500,000 members in the US. Similarly, Afterpay launched Pulse Rewards in July 2020, for users paying their installments on time.