Buy Now, Pay Later: Here to stay?

The idea of Buy Now, Pay Later has always been around in the retail market, with companies such as Layaway operating with US supermarket giant Walmart for decades. Yet with the rise in popularity of the electronic credit card halting the growth of this form of payment option in the early 2000s, it seemed as though companies like Layaway would be confined to a certain size and space.

However with the latest announcement from Swedish Buy Now, Pay Later company Klarna, which counts celebrity rapper Snoop Dogg among its investors, it seems this form of payment solution is back and very much here to stay.

Klarna revealed it has raised $460m (£377m) in an equity funding round, at a post money valuation of $5.5bn (£4.5bn). This new valuation means Klarna ranks as the largest private fintech in Europe and as o

Sebastian Siemiatkowski

ne of the largest private fintechs globally.

Klarna has been extremely popular with younger millennials who want to stretch their cash while splurging on the latest fashion trends and are seen to be turning away from revolving credit lines towards alternative and more flexible financing alternatives.

The company allows them to purchase an item with the option of paying for it either 30 days

later, or spreading payments over three months in equal amounts. It said this funding will help Klarna to continue its rapid rise in the US market, where it is currently growing at an annual rate of six million new US consumers.

Data from Experian indicates the average number of credit cards owned by the younger generation has dropped to as low as 1.44 – significantly lower than previous generations. As a result Klarna has seen a surge in merchant demand for its services and now claims to work with over 100,000 merchants worldwide, including ASOS, Topshop and JD Sports in the UK.

The Swedish firm also claims merchants who are offering its ‘Pay

in 4’ solution are reporting a 68% increase in average order value, a 44% increase in conversion compared to cards and 21% higher purchase frequency.

Regarding the announcement of its funding round, Sebastian Siemiatkowski, co-founder and CEO of Klarna declared it is a “decisive time in the history of retail banking”.

“Finally, transparency, technology and creativity will serve the consumer, and there will be no more room for unimaginative products, non-transparent terms of use or lack of genuine care of ones customers.”

The fact that Klarna is not the only Buy Now, Pay Later service making waves in the current retail market also suggest the longevity of this reimagined solution, with New Zealand-based service Laybuy also having similar – albeit smaller in scale success.

Officially launched in the UK earlier this year through a partnership with footwear retailer Footasylum, Laybuy allows consumers to spread the cost of purchases over six interest-free payments, with the first being made at the point of sale.

The company also now counts eponymous fashion brand Alexachung among its major UK clientele as well as a multitude of smaller stores.

The enticing nature of this service seems to stretch not only to the customers but to the retailers themselves with Edwin Bodson, managing director of Alexachung, announcing the flexibility offered by Laybuy was seen to be “key” for its audience and adding “it will only help to broaden our customer base.”

The market is seemingly only going to grow as Australian rival, Afterpay, has also announced its intention to join the fray in the coming months. The fast-growing firm used its shares to buy a majority stake in UK payments rival ClearPay last August in order to help “accelerate its entry into the UK market”.

The company has also already revealed plans to spend A$1.5m setting up the UK business, adding that “technical set up and in-market team development are well progressed”. The platform has target Urban Outfitters as its British “launch partner merchant”, with talks planned for a number of other retailers.

As a host of Buy Now, Pay Later services start to tussle over UK retail dominance and the loyalty of credit-starved youth it seems then this form of payment solution is here to stay.

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