The buy now, pay later wave: Afterpay, Klarna, Affirm and rivals hope to take U.S. by storm

A new form of digital layaway has taken Europe by storm and found some acceptance in the U.S., and the growing handful of rivals in the space are looking to spur more online purchases that Americans pay for over time.

“Buy now, pay later” options — referred to in the payments industry as BNPL — offer a twist on the concept of layaway, allowing consumers to split purchases into installments and charging them either simple interest or no interest at all, in a break from the traditional credit model that lets interest compound. Unlike with traditional layaway, consumers receive instant access to their purchase as they pay it off.

Furniture companies have long let people pay for big-ticket items in installments while taking the product home right away, but now the concept has made its way online, spreading across industries and into smaller purchase amounts, JMP Securities analyst David Scharf noted. Those looking to build fancy home gyms during the pandemic could split the cost of an $1,800-plus Peloton Interactive Inc. PTON, +2.24% bike into 39 interest-free monthly payments of $49 using financing from Affirm Holdings Inc. AFRM, +14.90% A host of other players have been rushing to stake their claims elsewhere in the U.S. retail market.

The services are seeing surging adoption, driven by growing merchant acceptance, booming e-commerce sales, and what many providers say is a skepticism among younger shoppers about traditional credit offerings. Though BNPL services accounted for just 2% of U.S. e-commerce payments last year according to FIS Global, they’re rapidly gaining in popularity. The value of purchases made using BNPL offerings rose 132% in the first quarter, per data from

BNPL services are more prevalent overseas, accounting for more than 7% of European e-commerce transactions in 2020 and 10% of Australian ones, according to FIS Global. In Sweden, home to BNPL provider Klarna, installments accounted for 23% of e-commerce transactions last year.

The installment wave has drawn the interest of established giants like Visa Inc. V, -2.68% and PayPal Holdings Inc. PYPL, -1.65%, as well as a host of newer fintech players that have carved out different paths as they seek to stake their claims in the nascent U.S. market.

The trend is of growing relevance to investors. U.S. startup Affirm recently went public, while Square Inc. announced a $29 billion deal for Australia’s Afterpay Ltd. APT, +12.40%, which trades in its home country. Sweden’s Klarna is considering an IPO in the U.K., according to Bloomberg, though its chief executive has expressed some concerns about potential regulations.