Long regarded as the best consumer financial product ever invented, the revolving credit card is suddenly under threat from another form of consumer lending that has been around for half a century in countries such as Greece, Turkey, Israel, Japan, Korea and large parts of Latin America. In some countries such as Israel and Brazil it has even been developed alongside credit cards for several decades.

The newcomer now growing rapidly in Western markets such as the US, UK, Australia and parts of Europe is called Buy Now Pay Later, or BNPL – and is in reality a modern form of instalment lending. While it has multiple origins – including the mail order catelogue, BNPL should also be seen as an evolution of old post-dated cheque systems that were cumbersome and expensive to handle. Digitalisation changed everything and all sorts of smart point-of-sale technology did the rest.

There are several drivers behind BNPL, but the underlying force is e-commerce, where BNPL is already either the dominant form of online consumer payment and financing in several countries or is well on its way to becoming so. The pandemic has undoubtedly also been a factor in pushing people towards e-commerce, and has also made consumers aware of the convenience of spreading larger items of expenditure on an interest-free basis over longer periods than credit cards. This, in turn brings a significant psychological benefit.

Gen Z and Gen Alpha consumers are also said to be turning against credit cards because of their high rates of interest. For them, BNPL often seems a much more sensible way of managing their finances.

e-commerce apart, merchants have long had a love affair with BNPL – believing it increases sales in return for the admittedly high commissions they pay to specialist BNPL intermediaries like Klarna from Sweden, Afterpay from Australia and Affirm from the US. These are just the big players in an ecosystem that is evolving rapidly as new organisations such as SIMPL of Hong Kong and Splitit of New York join the sector.

Contrary to the impression that BNPL lives in a space of its own, it is now merging into the regular world of consumer finance, as credit cards companies such as Barclaycard and Synchrony, and payments networks like Paypal and Stripe enter the business.

Most intriguing, perhaps is Citi, the US bank partnering with Amazon to offer consumers a variety of plans – with three, six, twelve and 48-month options.

The explosive expansion of the BNPL sector suggests that powerful changes are once again coming to the fore in the retailing and retail banking sectors. Historically, banks have always seemed to come out on top with their revolving credit cards but this time around it looks like another form of consumer finance will challenge cards – whether it comes from merchants, BNPL fintechs or banks.


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