Buy Now Pay Later – The next way that will takeover Credit Card payments?


What is BNPL?

BNPL stands for Buy Now, Pay Later. it is among the current methods to make payments for purchases through a finance or installment plan. Since the COVID-19 pandemic, online purchases have increased tremendously. BNPL rode along to this trend has become one of the major payment methods so much so that it has almost reached more than US$1 billion or slightly more than 2% of the global e-commerce transactions in 2020.

What are the BNPL options?

You might have come across names like Afterpay, Zippay, Affirm and Klarna. In Malaysia, Atome has been one of the most popular BNPL platforms. Other names include myIOU, Hoolah, Pinelabs and PayLater by Grab. It was reported that PayPal has since joined the game.

What is the concept behind BNPL?

Basically, BNPL is also known as a point-of-sale loan. If you are a shopper, you can enter into this transaction to pay for the item you purchased over an installment period. Installment plans have been around for a long time now. In the US, it is known as ‘layaway’ while Australians call it ‘lay by’. The most popular model in Malaysia currently is to split your purchase into 3 interest-free amounts.

  • You will have to opt-in for this service through the online application process when you checkout for the purchase.
  • The amount will be split into (in this case, 3 equal payments).
  • You then make the first payment and then you will be invoiced for the remaining amount.
  • How does BNPL make money?

The BNPL provider will be integrated to the checkout process of the retailer. They then have an agreement with the retailer for a certain percentage of the payments. Besides that, the BNPL provider would also generate income through late payment fees. There are situations where certain BNPL providers impose interest on installment plans that are for a longer-term.

How do this benefit retailers and customers?

According to market analysts, it was found that retailers are more than happy to incentivize the BNPL providers because it means they get more customers who are willing to buy products (as they get to spread out their payments). Meanwhile, customers are also more receptive and prone to buying higher-value goods or services.

As for customers, they would now have access to expensive or higher-priced items with better affordability. By spreading an item that costs RM900 into 3 installments, the buyer only needs to pay RM300 per month.

Will this payment method take over credit cards?

One thing is for sure, BNPL payments that stood at 2.1% in 2020 is expected and projected to grow and double by 2024. Since the COVID-19 pandemic, online retailers have reported an exponential increase in revenue. The fact that Afterpay was bought by Square and PayPal acquiring Paidy (in a US$2.7 billion deal) shows that the payment system landscape is moving towards the BNPL direction.

Given a choice, consumers will prefer an interest-free installment plan. BNPL might not take over credit card transactions in totality but it surely will be a major method of payment for online purchases from here on.

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