Tech mavericks who made buy-now-pay-later an option for shoppers worldwide are grappling with mounting losses and investor skepticism. Now big finance is on their tail.
This growing competition adds to pressure on buy-now-pay-later providers, which allow customers to split online purchases via their own apps or an extra button on retailers’ checkout pages. After several years of rapid growth, rising borrowing costs risk eroding their margins just as soaring inflation makes credit more tempting—and more dangerous—for many customers across Europe and the US.
There’s lucrative business at stake: Barclays, for example, made £541 million, or about 16 percent of its UK income, from its Barclaycard UK consumer lending arm in the first half of the year. To be sure, it’s smaller than its business lending or mortgage operations, but it would be painful to lose this customer base.
Also in the fray is payments giant PayPal Holdings Inc., which launched “Pay in 4” in August 2020, offering to spread the cost at 0 percent interest for purchases over £99. About 22 million consumers have now used the service globally. Yet as rates continue rising, both big lenders and new firms funded by venture capital will be tested and stressed, analysts believe. The latest plunge in fintech valuations means banks are also considering acquisitions to grow in this space, according to Mike Abbott, Accenture’s global banking lead. “This could be an opportunity for liability-rich banks to improve their long-term return on equity, balance their lending portfolios and reduce dependency on commercial lending,” he said.
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