BNPL Market Competition: Credit Cards vs. Payment Companies

The Enduring Popularity of Buy Now, Pay Later

The buy now, pay later (BNPL) model has firmly established itself as a permanent fixture in the financial landscape.

Just twelve months prior, the BNPL sector was largely defined by companies specifically created to facilitate installment payments at the point of purchase.

Early Leaders in the BNPL Space

Key players during that period included Sweden’s Klarna, Australia’s Afterpay, and the U.S.-based Affirm, all of which were prominently associated with the rise of BNPL.

However, the current market demonstrates a significant shift as a wider range of companies now acknowledge the potential benefits and compete for market share.

Recent Acquisitions and Expansion

Illustrating this trend, PayPal recently invested $2.7 billion in Japan’s Paidy, aiming to expand its presence in the Asian market.

Furthermore, Square announced its intention to acquire Afterpay for $29 billion in early August.

Speculation also suggests that Apple is preparing to enter the BNPL arena.

A Developing Ecosystem

The modern BNPL environment is witnessing the gradual development of a mutually beneficial relationship between established financial institutions, innovative payment companies, and major corporations.

As credit card companies and payment processors identify BNPL as a potential avenue for growth, original BNPL providers like Klarna and Affirm are exploring methods to broaden the accessibility of their installment loan options.

This indicates a convergence of strategies as both newcomers and incumbents strive to capitalize on the increasing consumer demand for flexible payment solutions.

Major Players Join the Buy Now, Pay Later Market

As consumer acceptance of Buy Now, Pay Later (BNPL) services increases, established credit card networks are actively positioning themselves to remain competitive.

Visa announced on Wednesday that an expanding network of issuers, acquirers, and fintech companies are leveraging its technology to provide BNPL options to their customer base.

Mary Kay Bowman, Visa’s Senior Vice President and Global Head of Payment and Platform Products, stated the company has been proactively supporting BNPL for several years.

She explained this support stems from a desire to broaden options and enhance convenience for both consumers and merchants.

“We facilitate BNPL solutions from fintech providers,” Bowman said, “and are also assisting banks in launching their own installment offerings.”

Notably, Visa revealed a “global brand deal” with Klarna, a leading BNPL provider, to expedite its growth and scalability across multiple markets.

Mastercard's Entry into the BNPL Space

This development follows Mastercard’s announcement last month of its own BNPL product, Mastercard Installments.

Craig Vosburg, Mastercard’s Chief Product Officer, emphasized that payment options should prioritize consumer choice.

He stated that individuals are seeking greater flexibility and control over their spending and payment methods.

The company attributed this move to increasing demand from both retailers and consumers.

The Strategic Shift of Credit Card Companies

The proactive approach of these credit card companies towards BNPL is a logical response to market trends.

A greater adoption of installment payments potentially reduces interchange revenue for networks like Visa and Mastercard.

Therefore, it is sensible for them to develop strategies to maintain their involvement in the payment process.

However, concerns remain regarding the potential risks of BNPL, with some critics arguing it represents another form of debt.

This could be particularly problematic for individuals already facing financial difficulties.

• BNPL offers increased flexibility for shoppers.
• Credit card companies are adapting to maintain market share.
• Potential financial risks associated with BNPL should be considered.

The Expansion of BNPL by Payments Providers

Major credit card networks aren't the sole entities vying for a position within the rapidly growing Buy Now, Pay Later (BNPL) sector. Smaller payments firms, including Stripe and Marqeta, are actively integrating BNPL functionalities into their application programming interfaces (APIs).

Stripe recently announced a collaboration with Klarna, enabling its merchants to provide installment payment options directly at the point of sale. This alliance will extend BNPL services to consumers across twenty nations and designate Stripe as Klarna’s primary payment facilitator within the United States and Canada.

This collaboration represents Stripe’s continued investment in BNPL; they previously partnered with Afterpay to incorporate their payment solution into the checkout process earlier this year. However, given Square’s subsequent acquisition of Afterpay, the Klarna partnership may serve as a strategic move to ensure ongoing access to BNPL capabilities.

Unlike Stripe’s focus on established BNPL leaders, Marqeta, a card issuer and payments platform, is pursuing a distinct strategy. They have formed a partnership with Zip, a BNPL provider based in Australia, to enhance conversion rates through the utilization of virtual cards.

Furthermore, Marqeta has entered into an agreement with Amount, a financial technology provider, with the goal of broadening the reach of virtual cards and BNPL solutions via conventional banking institutions. These payment companies aim to capitalize on the expanding BNPL market by securing a portion of its increasing transaction volume.

Strategic Partnerships in the BNPL Landscape

The integration of Buy Now, Pay Later options isn't limited to traditional credit card companies. Several payments providers are actively incorporating these services into their platforms.

Stripe and Klarna Collaboration

Stripe’s partnership with Klarna will provide customers in 20 countries with access to installment payments. This also establishes Stripe as the preferred payment partner for Klarna in both the U.S. and Canada.

This move follows Stripe’s earlier integration of Afterpay’s services. The Klarna deal potentially mitigates risks associated with Afterpay’s acquisition by Square.

Marqeta’s Approach to BNPL

Marqeta is taking a different route, partnering with Zip to boost conversions using virtual cards.

Their collaboration with Amount aims to make BNPL solutions more widely available through traditional financial institutions.

Expanding Access to BNPL

These partnerships demonstrate a broader industry trend. Payments companies are seeking to participate in the growth of the BNPL market.

By offering BNPL through various channels, these providers hope to capture a share of the increasing transaction volume. This expansion aims to provide consumers with more flexible payment options.

The Competitive Landscape of Buy Now, Pay Later (BNPL) Distribution

Established credit card networks and payment processors are actively seeking entry into the burgeoning BNPL market. However, the strategic positioning of leading BNPL companies – Klarna, Affirm, and Afterpay – provides valuable insight into the future trajectory of this evolving space.

As the BNPL sector expands, each of these major players is carving out a distinct path to achieve wider distribution.

Afterpay's Retail Integration

Afterpay’s existing strong foothold within physical retail locations made it an ideal acquisition target for Square and its extensive network of point-of-sale (POS) merchants. This collaboration will unlock increased BNPL opportunities for Square’s merchant base.

Simultaneously, Afterpay benefits from a significantly broadened distribution network.

Affirm's High-Volume Partnerships

Affirm is pursuing a strategy focused on securing partnerships with large-scale platforms. Collaborations with prominent companies such as Amazon, Shopify, and American Airlines enable Affirm to substantially increase transaction volume.

This is achieved by simply offering BNPL as a readily available payment option to millions of daily users during online checkout processes.

Klarna's Fintech-Driven Expansion

Klarna is concentrating on broadening its reach through strategic alliances with card issuers and payment providers. The goal is to seamlessly integrate BNPL options into a vast network of smaller online merchants.

By forging agreements with companies like Visa and Stripe, Klarna anticipates that fintechs and developers will be instrumental in driving its long-term growth.

A Diversified BNPL Future

A scenario where a single BNPL provider dominates the entire market appears unlikely. It is more probable that diverse options will become available, tailored to specific transaction contexts.

Consumers will likely encounter different BNPL solutions depending on whether they are shopping at a physical store, a major e-commerce site, or one of the numerous independent online retailers utilizing platforms like Stripe.

Continued Innovation in BNPL and Payments

Just as Klarna and Affirm continue to explore new avenues for customer acquisition, e-commerce businesses and payment companies will increasingly leverage BNPL to foster their own expansion.

This reciprocal relationship suggests a dynamic future for both the BNPL sector and the broader payments landscape.