Future of Buy Now, Pay Later Companies

Buy now pay later (BNPL) apps are a growing application that may replace credit cards for some people. BNPL plans have grown in recent years both in response to the impact of inflation on many consumers and due to the rise in online shopping, which gained steam during the pandemic.

Rising costs have caused pain for some consumers in terms of rising credit card balances and interest costs due the higher cost of purchasing many goods and products they need or want. In order to facilitate online purchases, many merchants have partnered with BNPL apps to provide consumers with another alternative to credit cards to make online and in store shopping easier.

Some major players in this space include:

  • PayPal (ticker PYPL)
  • Affirm (ticker AFRM)
  • Afterpay
  • Klarna
  • Zip Pay

How do Buy Now Pay Later apps work?

In most cases, a customer will use the BNPL app to make an online purchase, or in some an in-store purchase. Typically, a payment is due upon checkout, with subsequent payments made on a schedule set by the app company. The amount due at purchase can vary, in some cases it may be as high as 25% of the purchase price.

BNPLs can be a good option for buyers with a thin credit score, in some cases. Making on-time payments can help build your credit score if the app does report to the credit bureaus. The credit limit you might receive will vary by the app and by the buyer’s situation. Some BNLPs charge fees, others don’t. This is an emerging sector and there is a lot of variation among the various app providers.

Do Buy Now Pay Later apps impact your credit?

Credit card companies report information about your credit cards to the three credit bureaus. This includes information about your spending, your balances (amount of credit used) and your payment history. This information can have a significant impact on your credit score.

BNPL apps may or may not report your information to the credit bureaus. This varies among the various companies. Some do report information, some do not. In some cases, this reporting could be as an installment loan, in other cases they may only report delinquent payments.

Will Buy Now Pay Later Companies replace credit cards?

It’s hard to say if BNPLs will replace credit cards, but there are some significant differences between the two.

Credit cards offer a number of benefits including:

  • Rewards for purchases
  • Purchase protections that can include extended warranties and return periods
  • Insurance on purchases
  • Some cards offer access to airport lounges and statement credits

BNPL plans generally don’t come with these types of benefits. They may not even include protections against unauthorized purchases that are fairly standard with credit cards. Returning items purchased with a BNPL can be much more complicated than returning an item purchased with a credit card.

Both types of payment vehicles can have a place for consumers, but it seems unlikely that BNPLs will replace credit cards, at least in the near future. That said we don’t know what the future holds and given some of the companies involved in the space it is not something investors should just dismiss out of hand. In fact, we can see a future for these apps as retailers are very much in favor of them as a way to expand their sales, making it easier for some customers to buy.

Where are these companies going?

Obviously, it is hard to predict the future, but there are a number of solid players in this space. At this point in time there are some regulators that have concerns that the rise of BNPL apps will have an adverse impact on consumers by allowing them to potentially overspend and get themselves into adverse debt situations.

Retailers are supportive of the rise of BNPL apps as it can help them add to their sales. At some point hopefully these apps will have some sort of guardrails to curtail purchases by consumers who are in serious debt trouble.

If you are interested in investing in this space, consult with your Wedbush financial advisor to receive our latest research on companies offering BNPL apps.


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