North America Paytech Spotlight

Buy-Now-Pay-Later: An Impulse Buyer’s Kryptonite

Multiple paytechs have been able to use the pandemic as an opportunity to boost their developments and get an edge over their competitors. A couple of these include Klarna, a Swedish Buy-Now-Pay-Later (BNPL) company, and Afterpay, an Australian BNPL company, have thrived as the public were restricted to their homes and resorted to shopping online.

Klarna provides online financial services such as payments for online storefronts, direct payments and post-purchase payments. Klarna’s recent $1billion fundraise and $31billion valuation showed how investors were responding to BNPL. Data compiled by SimilarWeb analysed trends in BNPL among online retailers and how consumers were embracing the new forms of payment options provided.

The first notable finding was BNPL’s rapid growth in 2020. Between January 2020 and December 2020 eCommerce websites offering either Klarna or Afterpay grew by almost 60%. From March to July, during the peak of the pandemic, there was a 36% increase alone in the use of the service.

Growth In The Number of Websites With Either Klarna or Afterpay Installed
Growth In The Number of Websites With Either Klarna or Afterpay Installed

SimilarWeb’s other main finding was that companies that offered a BNPL option had higher conversion rates. After analysing the top 100 fashion and apparel sites in the US, SimilarWeb found that those who did offer Klarna or Afterpay had an average conversion rate of 5% vs 2.4% for those websites that did not.

US eCommerce Average Conversion Rate vs.Offering Klarna or Afterpay as a Payment Option
US eCommerce Average Conversion Rate vs.Offering Klarna or Afterpay as a Payment Option

Reading the fine print

However, Buy-Now-Pay-Later cannot be abused. Whilst more manageable in small amounts, studies have found that when used on larger payments, customers can often find themselves struggling to pay back the money owed and having to cut back in other areas to return the payment.

An ASIC report found that from November 2018 to November 2019, 21% of users had missed BNPL payments, with one in five people saying they had to cut back on essentials, including meals, to make payments on time. The pandemic led to an extreme boom in the use of BNPL services, as online shopping was the only option for consumers, and when given the option to pay back debts at a later date in financially uncertain times, the inability to repay debts on time only increased.

BNPL customers are younger than those typically taking on credit: 25% are under 24 years old, and nearly 50% aged between 18 and 29. In a time where job security was extremely low, especially for young people in junior positions, taking on this type of debt could be detrimental and spiral out of control. With the unemployment rate for youth at 26.9% in April, and at 18.5% in July 2020, about twice as high as a year earlier, young people in debt would find it extremely difficult to pay back what they owed.

$43 million was generated through late fees during the 2018-19 financial year, with the pandemic only increasing this number. 40% of Christmas lenders in 2020 were concerned they would not be able to pay back their debt on time.

The future of BNPL

It is impossible to return to a time where Buy-Now-Pay-Later wasn’t a viable payment option. After all, when used responsibly BNPL is a very useful shopping tool. Budgeting is one example of making sure the service can be used safely.

HyperJar is a debit account organised by spending ‘jars’ to help personalise saving and spending goals. The app is now expanding its partner base to include SMEs, with local pubs, cafes, kids’ centres, speciality food shops and restaurants starting to join the app over the next few months.

Mat Megens, founder and CEO at HyperJar, said: “There’s been a hostile environment for saving and planning for years, and the gravitational pull of easy credit has never been stronger. A new way for people to budget and spend well is overdue.

“The effectiveness of splitting out budgets and naming savings goals is well known, and our early customers tell us that adding a fraction more friction to their spending – taking a bit of time to think about what they want to spend in future – works. Visualising and allocating their money like this gives them clarity, control and confidence.”


  • Francis is a junior journalist with a BA in Classical Civilization, he has a specialist interest in North and South America.

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