Buy now pay later stocks disrupt the credit card industry - The Average Joe

    Buy now pay later stocks disrupt the credit card industry

    Victor Lei — Head of Research

    June 30, 2021

    buy now pay later stocks

    June 30, 2021

    Buy now pay later stocks: Credit card companies aren’t the only ones you’ll be owing — add BNPL companies to the list.  The Buy Now Pay Later (BNPL) concept exploded in popularity the past few years.

    So essentially a credit card?

    Yes, but better because most of the time, BNPL loans are interest-free. Credit card (CC) and BNPL companies also differ in how they make money. BNPLs make money by charging retailers a % of the transaction.  While credit card companies also do this, they charge retailers a smaller fee and hit consumers with high-interest fees instead.

    Despite the higher fees, merchants see the value of BNPL — shoppers are more likely to make a purchase and when they do, they make bigger orders. In 2020:

    • US CC transaction volume stood at $3.6t — dominated by Mastercard (NYSE:MA) and Visa (NYSE:V).
    • The top 3 global BNPL firms had $24b in transaction volume in the 1st quarter, less than 1% of the total CC volume.

    Consumers are about to owe BNPL companies a lot more…

    The industry is still in its infancy with plenty of room to grow:

    • In 2020, BNPL made up more than 7% of European e-commerce transactions — 10% in Australia and 23% in Sweden.
    • In North America, BNPL only made up 1.6% of e-commerce purchases but this is expected to reach over 4.5% in 4 years.

    The growth of e-commerce this past year only accelerated BNPL’s growth. While most BNPL purchases are made online and on big-ticket items, BNPL is slowly expanding to offline and smaller buys. In Australia, 25% of BNPL purchases are offline (i.e. Dentist visits). But in the US, BNPL still has a long way to go.

    Buy now pay later stocks: BNPL is dominated by 3 firms…

    • Klarna (privately traded) — a European firm recently valued at $45.6b — 4x what it was 8 months ago.
    • Afterpay (ASX:APT) — the second-largest BNPL company, expanded into the US in 2018, working with over 23,000 US retail brands.
    • Affirm (NASDAQ:AFRM) — the third-largest BNPL firm, also based in the US.

    Competition heating up: In 2020, fintech giant, PayPal, launched its own BNPL option. Mastercard and Visa are also experimenting with their own BNPL options.

    Dive Deeper: Tech stocks are looking cheap after falling hard early.

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