Buy now / pay later, which has become a major alternative to credit card debt since the pandemic recession began, has attracted the e-commerce giant Amazon, which will offer the option in partnership with the fintech Affirm.
The e-commerce giant began testing Affirm’s point-of-sale credit product on Friday in the US, with plans for a broader rollout in the coming months. Amazon’s customers can split purchases of $ 50 or more into monthly installments.
Fintechs such as Affirm, PayPal, Klarna and Afterpay offer buy now / pay later, which allows consumers to split large purchases into a series of payments, usually over three or four months. The providers pitch the product as having simpler terms than a credit card, as well as an opportunity to avoid revolving debt. Affirm’s clients include Walmart, Amazon’s primary rival, and Peloton.
The buy now / pay later provider pays the merchant upfront, with the consumer paying the installments to the provider. Affirm charges a fixed amount of interest that the consumer agrees to at the time of the loan, which the firm says is a way to avoid compounding debt. Each transaction is underwritten when a consumer uses Affirm at checkout.
Amazon controls about 50% of the US e-commerce market, according to Statista, providing a major new merchant to the BNPL industry.
It’s a win for Affirm, which controls 13% of the US buy now / pay later market, trailing market leader PayPal at 45%, according to research published by Arizent, American Banker’s parent company. Most BNPL purchases happen in e-commerce, making Amazon a natural fit for the service.
BNPL in general has become controversial as regulators in the UK and California are considering tighter controls following studies that have shown BNPL borrowers can accumulate debt quickly. But the product has become popular with investors and fintechs. The Amazon / Affirm partnership follows Square’s recent $ 29 billion acquisition of Afterpay, as well as several fundraising rounds for Klarna. Manzana also recently debuted its BNPL product.
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