Five buy now, pay later companies racking up interest

Paypal
PayPal’s BNPL service was launched in late 2020. What separates PayPal from its competitors are its other offerings, including retail instalment plans, a point-of-sale solution and digital wallet, according to a senior executive from Intrepid Ventures. Although this specialist doesn’t believe they could usurp Mastercard or Visa, “if you were speculating about who might, in 10-plus years, be a third or fourth genuinely global system, PayPal might be a very dark horse in that.” Despite its strength across the board, BNPL doesn’t seem to be a focus for the company. Asked whether PayPal would continue to lag other players, a former head from Affirm commented that “there were [no] direct plans to set it up in a way that would be competitive with Afterpay or Klarna. Certainly, that could change if they decide to make an investment.” 

Afterpay
Established in 2014 and based in Australia, Afterpay is cited as one of the BNPL leaders. Although its presence is largely focused domestically, the company has expanded into Europe in recent years, with its acquisition of Spanish BNPL firm Pagantis in 2020 and entering into a share purchase agreement of Clearpay in 2018. And as a result of the US becoming its biggest market, in April it was reported that Afterpay had enlisted advisers to look into a US listing. Here, Afterpay’s biggest rival is Klarna, which has spent “many millions of dollars trying to grow”. However, the Affirm specialist is bullish on the former’s prospects: “I think when [Afterpay] entered the market a couple of years ago, it was very clear that they were going to grow quickly as a very focused product”. They have an “extremely strong marketing engine and customer network.”

Klarna
Klarna was founded in 2005 in Sweden. “Globally, it’s probably the battle between Afterpay and Klarna,” according to the former Affirm executive. However, “Klarna has a much bigger European presence.” An investment round in March, bringing in USD 1bn, made the company the most valuable European fintech. Early June 2021, it’s value was reported as USD 45.6bn, growing by 50% from three months earlier. And now Klarna is expanding its offerings. In mid-June 2021 a comparison shopping service was launched, providing retailers with access to Klarna’s customer network. While some BNPL offerings do not fall under regulatory oversight, the former Affirm executive explained that Klarna is among those that do: “they are regulated by the FDIC and potentially the OCC through their partner originating bank, not directly. They certainly have to answer to these regulatory bodies.” This, the specialist continued, puts them in good standing if Regulation Z were to be extended.

Affirm
Headquartered in San Francisco, Affirm was launched in 2012 by one of the co-founders of PayPal, Max Levchin, along with Nathan Gettings, Jeffrey Kaditz, and Alex Rampell. It is one of the three global leaders, along with Afterpay and Klarna, and among the first within the US market, noted our specialist. Listing the main players’ focus areas, the former Affirm executive noted that Afterpay “owned fashion”, with Klarna and Affirm looking to penetrate this area too. “Outside of that space, the same larger, considered purchases, it’s Affirm vs Klarna, because they have the regulatory setup, the ability to charge interest rates.” In addition, Affirm has had a strong “head start and lots of marquee merchants in that category. The Peloton relationship is one that speaks to the strength Affirm has here.”

Sezzle
A relative newcomer, Sezzle is another US-based BNPL offering. Recently, it became the BNPL lender of choice for US retailer Target, signing a three-year deal. This follows the April 2021 announcement that Sezzle was looking to register for an initial public offering in the US, although the timing has not been determined. It was stated in one of our Interviews that there has been some “really strong growth from Sezzle”. On the topic of its partnership with Ally to gain access to a degree of its credit underwriting function, the specialist commented that: “Sezzle still had to build a lot of that… In reality, it didn’t work out so well because Sezzle doesn’t have experience building credit models where customers are taking 1-2-3 year risks potentially.”