Visa Investing in Buy Now, Pay Later Loans
Visa is investing in Buy Now, Pay Later (BNPL) loans, joining Klarna, Afterpay, PayPal, Affirm Holdings, and possibly Apple to offer a solution to provide customers with the ability to pay for larger purchases interest-free over a fixed number of months.
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This is significant because Visa is one of those long-established brands in consumer finance, not a fintech that established itself through the rise of online commerce.
On Visa’s recently launched BNPL partner website, it targets financial institutions, technology partners, and merchants, promising it would be releasing the capabilities for its BNPL offering soon to developers.
Once the behind-the-scenes tech is ready, developers can build and pilot BNPL installment experiences for their customers.
Visa did not provide a timeline for when consumers may see Visa-branded BNPL solution go live. Much of this will depend on how quickly its technology and merchant partners roll out solutions to consumers.
What Are BNPL Loans?
For those not familiar with BNPL loans, it’s a short-term finance product that enables consumers to purchase more expensive items but pay them off without incurring interest charges.
Most BNPL loans are four months in length, and the consumer must make a payment every month. The cost of the loans is funded by a higher merchant processing fee, which is why BNPL loans offer a zero percent interest rate.
However, one of the criticisms of BNPL loans is that they often are taken out by consumers with no other credit opportunities, usually because their credit ratings do not allow them to obtain a regular credit card.
BNPL loans can easily entice consumers to make purchases they may not be able to afford because they are so enticing and easy to get.
Klarna could be considered one of the pioneers of the BNPL scheme as it started in 2005 in Sweden. Others have followed more recently, such as Afterpay and Affirm, with longtime fintech PayPal getting into the game last year.
But it’s not just fintechs that want to offer BNPL loans.
For example, in partnership with Goldman Sachs, Apple is reportedly planning to launch a BNPL product called Apple Pay Later, taking advantage of the millions of users tied into its echo system.
Why is Visa Investing in Buy Now, Pay Later Loans?
Studies on BNPL continue to confirm there is plenty of demand for this growing industry. For example, a survey by Motley Fool found nearly 38% percent of consumers had used BNPL in July 2020 to make a purchase, and in less than one year, that number jumped to over 55%, a 50% increase.
Furthermore, the study found the largest growth of BNPL was in the 18-24 (62%) and 55+ (98%) age ranges. And among respondents that had never used a BNPL loan before, 53% said they were likely to consider it within the next year.
Without a doubt, the Covid pandemic helped fuel this growth, but the industry was already growing before that. The pandemic just accelerated the acceptance by consumers of BNPL.
So, it shouldn’t come as a surprise why Visa wants in, and there could be more big names to follow.
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Richard is co-founder of eSeller365. He has over 17 years of experience on eBay which includes tens of thousands of sales to buyers in over 100 countries and even has experience with eBay’s VeRO program enforcing intellectual property rights for a former employer. And for about two years Richard sold products on Amazon using Amazon FBA in the US.
To “relax” from the daily business grind, for a few weekends a year, he also works for IMSA as a professional race official.