The idea of buy now pay later(BNPL) companies is that they loan money interest free to consumers so consumers can purchase things. Afterward, consumers have to pay back the loans, but they don’t pay any interest. Instead, the way BNPL companies make money is through charging merchants a high % fee. Merchants accept if they believe the higher sales from BNPL will be worth the fee.
This novel idea has expanded greatly in the last few years, with the value of BNPL loans increasing from $2 billion in 2019 to $24 billion in 2021. This created much excitement in the fintech space, with one of the largest BNPL companies Affirm reaching a valuation of $45 billion.
However, nowadays, such hype has seemingly died down as high interest rates have impacted consumer spending and inflation has strangled many household’s wallets, contributing to Affirm falling to a valuation of just around $9.5 billion.
Another example of the decline of BNPL can be found in Apple discontinuing its own BNPL program. Merely two years after announcing the Apple Pay Later program, Apple announced this week it would be pivoting away from it, choosing to partner with other companies instead of directly engaging in BNPL.
The BNPL is still nascent and growing, but the extreme excitement surrounding it has declined over time as financial realities have come to light.