‘Buy Now, Pay Later’ Is the Victim of its Own Success

The industry is now facing an existential crisis, as profits remain elusive, valuations plummet, competition increases and regulators ask tough questions about the lending practices behind B.N.P.L.

A victim of its own success

Klarna, the SoftBank-backed B.N.P.L. company, until recently was the largest start-up in Europe, with a valuation of $45.6 billion despite never making a profit. The Swedish company, started in 2005, hit the U.S. market with a splash. It lined up Maya Rudolph, the former “Saturday Night Live” actress, for a 2021 Super Bowl ad (average cost: $5.5 million for a 30-second spot). That may have helped it make inroads into the United States, but it has since fallen on harder times. The company has slashed jobs, and its valuation has plummeted to $6.5 billion, according to The Wall Street Journal.

“Candidly, ‘buy now, pay later’ is just a feature,” David Sykes, Klarna’s chief commercial officer, told DealBook. “If all you’re doing is offering the ability to break a purchase up into installments, we don’t think, long term, that’s dynamic enough.” Two of the other big global B.N.P.L. players, Affirm and Afterpay, have never turned an annual profit, either.

What happened? Initially, the heaviest B.N.P.L. users were young women buying clothes and beauty products, and the option then grew among consumers of all ages, for any imaginable purpose or product. In the early days of the lockdown, Peloton exercise bikes were a popular purchase for B.N.P.L. customers. Ahead of its initial public offering in 2021, Affirm flagged its reliance on Peloton as a business risk, noting its biggest merchant partner accounted for more than a quarter of its revenue.

As B.N.P.L. has become more popular, however, more and more companies — from American Express to Citibank to PayPal — have muscled in. In June, Apple announced a plan to enter the market, although its rollout has been delayed until later this year. Increased competition is expected to drive down margins even further, as merchants drive harder bargains with the army of providers.