Amazon finally catches the ‘buy now, pay later’ wave

Source: Affirm
Aug 30, 2021

Following a rush of other retailers adding the payment option, Amazon is bringing a buy now, pay later (BNPL) checkout option to its U.S. platform for the first time.

Under the partnership with Affirm, Amazon customers at checkout will have the option to split the total cost of purchases of $50 or more into monthly payments in select markets. The option will become more broadly available in coming months. Purchases from Whole Foods, Amazon Fresh and certain digital purchases like movies and books will not be eligible.

Amazon already works with Zip, formerly Quadpay, in Australia.

Amazon’s push adds more credibility to BNPL installment services and comes after Square last month agreed to acquire BNPL-giant Afterpay for $29 billion. Apple has also partnered with Affirm on a BNPL option in Canada. Klarna and Paypal are other major BNPL players.

The short-term financing method has quickly become common with Walmart, Best Buy, Nike, Macy’s and Sephora among the many chains rolling out the option.

For retailers, the primary appeal is to reach younger consumers encumbered by student loan debt. The 2010 Card Act also made it harder to get a credit card before age 21.

Typically, the loan is paid off in four installments over a six-week period. Unlike old-school layaway programs that Sears pioneered in the sixties, shoppers receive the purchases right away instead of waiting for all installment payments to be made. Simplified checkout and the lack of hidden fees also drive BNPL’s appeal.

A new study from Financial Technology Partners (FTP) predicts that BNPL will jump from 2.1 percent of all global payment methods to 4.2 percent in 2024, while all other payment methods except digital/mobile wallets decline.

BNPL companies make most of their revenue from merchant fees, which can run two to three times credit card processing fees. However, BNPL providers take on all credit risk (including fraud and chargebacks) and deliver payment in full to the merchant at the time of purchase.

Some stores risk losing revenues gained from the use of their store-branded credit cards. With many BNPL players conducting light credit checks on customers, retailers may also be called out should consumer debt escalate with increased BNPL use. 

Do you see more positives or negatives with the buy now, pay later (BNPL) trend for retailers?

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"It is interesting that Amazon has opted to partner for buy now, pay later rather than develop its own program."
"There needs to be education on this, especially towards younger consumers, and I am hoping the responsible retailers will help lead the charge here."
"At its core this is nothing more than factoring receivables. Small businesses have been doing it for decades."

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19 Comments on "Amazon finally catches the ‘buy now, pay later’ wave"

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Mark Ryski

Demand for buy now, pay later is real and accelerating – Amazon’s acceptance is yet another example. While the concern about younger consumers getting over-extended as a result of using BNPL services is understandable, the fact is the service is helpful for those who choose to use it. As long as consumers – and particularly younger consumers who these services are targeted at – don’t get too carried away, I see more positive than negatives.

Ian Leslie

BNPL is obviously growing by leaps and bounds. While I think it’ll continue to gain traction I do think the BNPL services eventually will have to be more discerning with their credit checks and approvals. Also, I do think BNPL will become a sticking point for some brands that want to promote a brand narrative that their customers should be considerate of their finances and not spending more than they can afford when making a purchase. It’ll be a balancing act for sure.

Martin Whitmore

As cash transactions become more and more obsolete, retailers are beginning to get in on the buy now, pay later model. Not only do I think this will continue to grow rapidly online I also see the trend growing in the store. It is a trend that has roots in the furniture industry where you are stepped through the process of multiple financing options even to the point of rent to own.

The ability to take the pain of collection away from the retailer and put the onus on the financing company helps retailers maintain a positive relationship with their customers.

Michael La Kier

Alternative financing, including BNPL options, are increasing. It’s a bit of “back to the future” in terms of retail. This should benefit retailers as long as the financing is not on their books.

Suresh Chaganti

BNPL is yet another payment method for retailers, and retailers take no risk. It is structurally similar to a credit card transaction. BNPL players are banks. This is yet another example where something that has always existed was tweaked and found a new market segment. Entities like Citi, MasterCard, and Visa could have been in place of Klarna, Affirm. But that’s the nature of innovation.

The risk is for BNPL providers with potentially higher default rates than credit card. The revenue model is still evolving, although there is a lot of potential.

Richard Hernandez

It makes sense – there is a huge demand for buy now, pay later and to not offer it would not be good for business.

Ken Lonyai

Capitulation. There’s a huge trend in the direction of BNPL that Amazon has resisted for some reason, but that resistance hasn’t slowed the trend. So the obvious choice for Amazon is to embrace it or lose a teensy portion of sales, but more importantly, some grip on shoppers, especially non-Prime shoppers.

Bob Amster

BNPL is not really new. Remember layaway? It will help those who use it wisely. As to competing with credit cards, if the retailer accepts credit cards as the tender for each installment, I don’t see why it should be a problem. If retailers do not accept credit cards as a tender for BNPL purchases, BNPL will have a negative impact on credit card companies. To what extent?

Rick Watson

Payments innovation at Amazon has been anemic. Where is the vaunted Amazon innovation? When did Affirm launch? In 2012. Welcome to 2021 Amazon.

Brandon Rael

The emergence of Affirm, Afterpay, Klarna, and other buy now, pay later payment models has accelerated and has become a viable option for customers who are hesitating on big purchases and all the finance charges associated with credit cards and installment loans. Amazon’s partnership with Affirm only solidifies that this payment model is here to stay. A winning proposition is any strategy that enables retailers and brands to make the payment and checkout process more seamless.

However as the old Spider-Man saying goes, “with great power comes great responsibility.” Customers could quickly become overextended if they spend beyond their means. Even with the six to eight week installment cycles, customers have to be accountable and responsible to budget themselves accordingly. While the buy now, pay later model offers flexibility and immediate gratification, customers could potentially default on these payment arrangements without proper budgeting.

DeAnn Campbell

Younger consumers today don’t have access to the same credit options as older shoppers. And with student loans, higher cost of living and ongoing recession and inflation fears, they may never achieve the same buying power as their parents. Buy now, pay later is one of the few tools retailers have available to allow Gen Z shoppers to participate in the retail industry at a level that will help retailers maintain revenue as senior citizens begin to age out. I’m also encouraged with the surge in money management apps that target Gen Zs to help them stay on top of their money management. I’m seeing the emergence of a generation of smart and capable adults who have the ability to manage their debt responsibly.

Lisa Goller

Finance is getting more flexible, as younger generations smash archaic ways of doing business.

Banking, investing and insurance have become more consumer-centric to stay competitive with informed, empowered Millennials. Now BNPL makes merchandise more accessible to the influential — yet cash-strapped — Gen Z cohort.

Now credit card providers face more competitors threatening to erode their high margins.

Lauren Goldberg

There is certainly customer demand for BNPL services and it makes sense that Amazon would jump in to this arena. My concern is that we will see revenue and comps grow for retailers as people who can’t afford to buy will buy — and then there will be a bubble that bursts due to consumers defaulting, leading a drop in revenue. Almost like the real estate market in 2008 — banks were giving loans to people who couldn’t afford them, only to see a rise in home values, then defaults and the market collapsed. There needs to be education on this, especially towards younger consumers, and I am hoping the responsible retailers will help lead the charge here.

Jennifer Bartashus

This is a rare instance where Amazon is following other retailers rather than leading. It is interesting that Amazon has opted to partner for buy now, pay later rather than develop its own program. This seems to indicate a bit of a wait and see approach that limits risk initially while giving time to observe consumer adoption.

Shep Hyken

I’m surprised Amazon didn’t think of this first! (HA!) These types of options continue to deliver a better consumer experience. As the economy shifts, having a strong payment program in place is important. Inventory and pricing will need to adjust accordingly.

Ben Ball

At its core this is nothing more than factoring receivables. Small businesses have been doing it for decades. There’s no downside risk to the retailer — just a known cost of laying off the risk to the third-party provider.

Ananda Chakravarty

Amazon is looking to increase average order value and push sales of higher priced items without taking on any additional risk (hence the partnership). I suspect there has been a drop or at least a slowdown of high priced goods sold through Amazon, and a boost will incentivize customers to buy the higher priced items, including luxury and appliances, through Amazon. Not that this is a major change. Customers already purchase these products, but offering BNPL satisfies a key segment that had relied primarily on credit to make their purchases. This offering also moves downstream in the wealth spectrum to those who are unable to afford high-priced products during any cycle.

Trevor Sumner

The fear is that this begins the dystopian descent into buying things consumers can’t afford, increasing debt and causing credit issues, which luckily aren’t on the retailer’s books. While concerns have been raised in other markets, it’s too early to tell how real that fear will become. In the near-term, it spikes demand which is good for all the businesses involved.

Allison McGuire

I see this as an opportunity, not just for college students, but also for small businesses that are getting off the ground and can benefit from a payment plan. Users get more product up front and as sales start to come in, they pay off their balance over 6 weeks. I don’t currently see a downside to offering customers more options and making your company easy to do business with!

"It is interesting that Amazon has opted to partner for buy now, pay later rather than develop its own program."
"There needs to be education on this, especially towards younger consumers, and I am hoping the responsible retailers will help lead the charge here."
"At its core this is nothing more than factoring receivables. Small businesses have been doing it for decades."

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DISCUSSION QUESTIONS: Does the buy now, pay later (BNPL) trend offer more benefits than risks for retailers? Do you see BNPL as a major threat to credit card providers?