BNPL companies facilitate transactions between consumers and merchants by providing a payment gateway that allows customers to select BNPL as a payment option during checkout.
– Increased sales for merchants by attracting budget-conscious shoppers. – Convenience and flexibility for consumers in making purchases. – Opportunity for BNPL companies to earn revenue through transaction fees and interest charges. – Data analytics for risk assessment and credit decisions.
– Default risk: Late or missed payments can lead to financial losses. – Regulatory scrutiny and compliance requirements. – Potential for overspending by consumers. – Competition in the crowded BNPL market.
Afterpay, Klarna, Affirm
Interest-Free Financing
BNPL companies offer consumers the option to spread the cost of their purchases over multiple installments without charging interest. Payments are typically made biweekly or monthly, allowing customers to budget more effectively.
– Attracts price-sensitive consumers looking for interest-free financing. – Improved affordability and accessibility for higher-priced items. – Simplified budgeting with fixed payment schedules. – Potential for higher average transaction values.
– Revenue reliance on merchant fees and late payment fees. – Risk of defaults if customers miss payments. – May encourage impulsive spending. – Intense competition in the interest-free BNPL segment.
Quadpay, Zip, Splitit
Interest-Bearing Loans
Some BNPL companies offer interest-bearing loans, allowing customers to spread payments over time with the inclusion of interest charges. These loans may have fixed or variable interest rates based on the customer’s creditworthiness.
– Revenue generated through interest charges in addition to merchant fees. – Appeals to a broader range of customers, including those with lower credit scores. – Potential for larger profit margins.
– Risk of customer dissatisfaction due to interest charges. – Increased regulatory scrutiny due to interest rate disclosures. – Complexity in managing different interest rates and credit risk. – Potential for customer defaults impacting profitability.
Klarna Financing, PayPal Pay in 4
Merchant Partnerships
BNPL companies establish partnerships with online and brick-and-mortar retailers to integrate their payment solutions into the merchant’s checkout process. These partnerships expand the BNPL company’s reach and provide consumers with more choices when making purchases.
– Access to a wide network of merchants and increased acceptance. – Exposure to diverse customer demographics and purchase categories. – Increased transaction volume and revenue opportunities. – Opportunity for cross-promotions and marketing campaigns with partner merchants.
– Competition for merchant partnerships can be intense. – Integration challenges and technical requirements. – Dependence on the success and reputation of partner merchants. – Need for continuous relationship management with multiple partners.
Some BNPL companies expand their services internationally, allowing consumers to make purchases from merchants in different countries. This expansion enables global customers to utilize BNPL solutions, potentially increasing transaction volume.
– Access to a broader customer base and increased transaction volume. – Diversification of revenue sources across multiple markets. – Opportunity to cater to international shoppers seeking financing options.
– Regulatory complexities and compliance challenges in multiple jurisdictions. – Currency exchange rate risks. – Competition with local BNPL providers in each market. – Variability in consumer preferences and shopping behaviors across countries.
Klarna International, Zip Global
In-App and Online Checkout
BNPL companies often provide consumers with the option to complete their transactions directly within mobile apps, websites, or online marketplaces. This streamlined checkout process can enhance user experience and increase conversion rates.
– Seamless and frictionless payment experience for customers. – Higher conversion rates and reduced cart abandonment. – Data collection for personalized offers and recommendations. – Opportunities for partnerships with e-commerce platforms.
– Dependence on the adoption of BNPL by e-commerce platforms and apps. – Competition with other payment methods and digital wallets. – Ensuring data security and privacy compliance. – Technical challenges in integrating with various e-commerce systems.
Afterpay is a FinTech company providing as a core service the “buy now pay later” solution. When a consumer purchases a product, Afterpay pays the seller and asks the consumer to pay 25%. The remaining 75% is paid in three, fortnightly installments that are also interest-free. Afterpay, in turn, makes money via merchant and late fees.
Started as a pay-later solution integrated into merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.
Splitit is a fintech company founded by Israeli entrepreneurs Gil Don and Alon Feit in 2009. The platform was initially created to allow consumers to use existing credit to make BNPL purchases.
Splitit relies on transaction fees to make money, with the exact fee depending on how and when the merchant chooses to be paid.
Splitit does not charge consumers for late or missed payments. Nor does it charge interest on purchases. Instead, the company relies on transaction value and mass consumer uptake to make money.
Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.
Revolut is an English fintech company offering banking and investment services to consumers. Founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, the company initially produced a low-rate travel card. Storonsky in particular was an avid traveler who became tired of spending hundreds of pounds on currency exchange and foreign transaction fees. The Revolut app and core banking account are free to use. Instead, money is made through a combination of subscription fees, transaction fees, perks, and ancillary services.
Key Points about Different Fintech Business Models:
Afterpay Business Model:
Offers “buy now pay later” solution.
Consumers pay 25% upfront, followed by three interest-free installments.
Makes money through merchant and late fees.
Affirm Business Model:
Provides pay-later solution integrated into merchants’ checkouts.
Earns revenue from merchant fees, interests on consumer loans, virtual cards, and servicing fees.
Klarna Business Model:
Allows consumers to shop with a temporary Visa card.
Makes money through merchant fees, interchange fees, and interests on customer accounts.
Splitit Business Model:
Allows consumers to use existing credit for BNPL purchases.
Makes money through transaction fees paid by merchants.
Doesn’t charge consumers for late payments or interest.
Quadpay Business Model:
Offers buy-now-pay-later services.
Collects various fees from merchants and consumers, including merchandise fees, convenience fees, late payment fees, and interchange fees.
Venmo Business Model:
A mobile payment service that allows users to send and receive money.
Makes money through transaction fees for instant transfers and merchant fees for certain business transactions.
Stripe Business Model:
Provides payment processing and infrastructure for online businesses.
Earns revenue through transaction fees and payment processing fees.
Revolut Business Model:
Offers banking and investment services.
Makes money through subscription fees, transaction fees, perks, and ancillary services.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
