What: Remember BNPL? Retail Dive makes an interesting recap of the state of the market.

Why it is important: Some predicted that it would die our of regulation (that did not come) and actually BNPL is stronger than ever.

Buy now, pay later (BNPL) services, allowing consumers to purchase items and pay over time often without interest, have surged in popularity. Originally gaining traction in Europe and Australia, BNPL saw a significant rise in the U.S. with the COVID-19 pandemic, as online shopping increased. The service appeals to consumers, especially millennials and Gen Z, who avoid traditional credit cards, and to merchants seeking to boost sales.

BNPL works by letting shoppers immediately acquire items and pay in installments, typically without interest. While some providers do charge interest or fees in certain cases, the most common model is interest-free, with payments spread over a few weeks. The ease of use has contributed to its growth, especially among younger, digitally savvy consumers.

The market is crowded with players like Affirm, Afterpay (now owned by Block), Klarna, and PayPal, and has recently seen entries by major companies like Apple. Despite the competition, BNPL providers have generally been operating at a loss, under pressure to prove profitability to investors.

The industry faces challenges like potential regulation, as it currently operates in a somewhat gray area under existing lending laws. The Consumer Financial Protection Bureau has raised concerns about consumer debt and data harvesting practices. Meanwhile, BNPL companies are diversifying their offerings and seeking to attract older, wealthier customers.

Consolidation is already happening in the sector, and the market is likely to become more regulated and streamlined in the future, with weaker firms either dying out or being absorbed by larger entities. In response to rising interest rates and funding costs, BNPL providers may increasingly shift towards interest-bearing loans for profitability.

Breaking down buy now, pay later