The Genius Business Model of Buy Now Pay Later

If you’ve bought anything online in the last couple of years, you’ve probably noticed some new payment option when getting to the checkout page of many online retailers Companies like Affirm, Afterpay, and Klarna have all started offering buy now pay later services that allow users to pay for their purchases over a series of instatement rather than paying up front and in full at checkout. The rise of this new payment form represents a major shift in the payments industry, offering consumers increased flexibility in managing their finances while avoiding the often times aggressive fees from credit cards. But with so much attention being paid to the buy now pay later market, I figured we should take a look at the underlying business model to get a better understanding of the market overall and determine for ourselves whether the hype is truly justified.

Chapters:
0:00-1:44 Intro
1:44-3:17 What is Buy Now Pay Later
3:17-4:48 Market Opportunity
4:48-6:00 Business Model
6:00-7:07 Value Proposition for Merchants
7:07-8:01 Unit Economics
8:01-10:33 Own the Demand
10:33-11:21 Flywheel Effect
11:21- 14:06 Recessionary Concerns
14:06-15:13 Closing Thoughts

[Thinking_Business]

Chapters:
0:00-1:44 Intro
1:44-3:17 What is Buy Now Pay Later
3:17-4:48 Market Opportunity
4:48-6:00 Business Model
6:00-7:07 Value Proposition for Merchants
7:07-8:01 Unit Economics
8:01-10:33 Own the Demand
10:33-11:21 Flywheel Effect
11:21- 14:06 Recessionary Concerns
14:06-15:13 Closing Thoughts

[ricknogan]

@4:56. Incorrect. CC companies make $ by charging service fees to use their rails. The bank issuing the card makes $ by charging interest.

[mandolorian]

The specific advantage is the merchant can decide at the product level whether to underwrite the consumer’s purchase with a higher merchant fee. Given that the largest credit card companies do trillions in payments and can’t give the merchant this feature and they ask for 10s of billions of dollars per year this is a big disruptive trend

[uch]

This was educating...thanks.

BNPL isn't new per say.
I live in a third world country. We have this practice of purchasing foodstuffs, items like sachet milk, pieces of teabag ( many folks can't afford a pack), a cup/module of rice; measured from bags using empty an tomato tin...yet a lot of households can't afford to pay for these items.

And so we buy from neighborhood kiosks with the promise to pay later - much of it is based on trust.

Of recent, new startups in Nigeria are trying to do data driven BNPL. For instance, platforms like carbon zero require the credit history of applicants before approving their purchase.

[vanshraj]

We are implementing order now pay later in one of our models and this was a good overview to get started to lear n how this works

[williamhaynes]

0:22 - affirm holding was ta 124.58 when you did video.. now its $17.90... its tanking

[kiwifruitkl]

This will work well for people who want INSTANT GRATIFICATION. You buy now. You enjoy the stuff. Then you pay it off in small installments.
However, the old-fashioned approach is just to save up your money in a piggy bank, then use the money to buy what you want. And when I say "buy" in this case, I also mean "pay for that thing instantly".
Personally, I like the old-fashioned approach.
I actually do not like debt, and I am fortunate enough to not have any debt. But I live in a debt-ridden western society, so the most I do is have one credit card, increase credit score, buy stuff occasionally with the credit card but NOT too much because borrowing too much will affect the utilization score.

[georgeislamee]

Great video. One major risk I see is a regulation crackdown. Currently, these debts don't appear on your credit report and consumers are able to use all the BNPL apps available which could lead to irresponsible borrowing. Wonder how the default rate will behave during the next few years.

[dinimakhmudov]

I am a fan of BNPL.
I use it mostly for home decor.
The process is quick and painless.
No issues so far.

I can see how BNPL can get one to overspend and go into debt, though.
People who can’t/won’t control their spending, will have an easier time just buying whatever they want, and deal with the consequences later.

This payment option can be a double-edged sword.

[hoang-AI]

Very nice introduction to BNPL! I can tell you're running a very promising channel here! Please keep it up!

[williamhaynes]

You left out the other option... REnt To Own... which is its own nightmare

[brianmccain]

You didn't mention that credit card companies derive a significant amount of income by charging a transaction fee. Just like the BNPL companies

[dejavu]

Loved this video. Capitalism on steroids. I am preparing for a Stripe interview and so this is super insightful !

[SaadHussain-yd]

From where do BNPL companies get the capital to provide merchants and consumers the flexibility of split payments

[Handgiver]

How do I get someone to build the app for buy now pay later for me ?

[NobodyInTraining]

It's interesting that you have such a good view of the Buy Now Pay Later business model, whereas Modern MBA thought it was a wretched business model, where providers are never able to actually generate a profit. Have you seen his video? Do you have any thoughts on it?

[robert]

Simple just use credit cards get rewards and pay on time no interest ever