6 new twists on buy now/pay later loans

September 26, 2022 12:26 PM

Buy now/pay later loans boomed during the pandemic as BNPL fintechs introduced a turnkey way for consumers with little or no credit to make purchases online, creating a phenomenon that continues to have major repercussions.

Some setbacks have cropped up for big BNPL fintechs like Affirm and Klarna, which have undergone sharp market devaluations in recent months in response to rising inflation, higher interest rates and intensified competition. The Consumer Financial Protection Bureau also recently said it may develop guidelines to rein in BNPL lenders whose practices are mostly unregulated.

But the popularity of buy now/pay later loans is undeniable, as more than half of U.S. consumers have tried a BNPL loan and more than 90% of users report being satisfied with the concept, according to a poll conducted among 2,200 U.S. adults by Morning Consult on behalf of the Financial Technology Association between Sept. 1 and Sept. 3, 2022.

Other industries — even traditional credit card issuers — have seen how BNPL loans resonate with consumers. Many are now trying to adapt the product to fit their business models, with a few tweaks. From charitable donations to pet care, here are the areas where BNPL loans have sparked finance innovations.

B Generous founder Dominic Kalms deploys a model similar to BNPL lending to fund donations.

Donate now, pay later to benefit charities

Los Angeles-based startup B Generous has applied the BNPL model to charitable giving, with its "Donate now, pay later" platform launched last month.

The concept aims to change the patterns of donations. Many nonprofits typically receive funds during the last three months of the year, leaving these same organizations starved for cash at other times.

Partnering with St. Paul, Minnesota-based Drake Bank, B Generous has created a "point of donation loan" for donors so nonprofits may receive promised funds immediately. Donors may also take the tax benefit immediately, but they can stretch out payments on the full donation in installments throughout the year with no interest or fees.

In an ongoing pilot, donors agree to pay nonprofits in installments spread between six and nine months. Drake Bank and B Generous are planning to split the cost of each participating nonprofit's account maintenance fees — estimated at about 10% — although donors will also have the option to cover those fees on behalf of the nonprofit.

Total U.S. charitable giving reached $484 billion last year, up from $466 billion in 2020, and 67% of donations came from individuals.

Merchants using texts to send bills to consumers are increasingly interested in adding buy now/pay later options, according to Everyware CEO Larry Talley.

Text now, pay later technology expands

Everyware has been working on technology since 2015 that lets merchants like automotive service centers and dentists send and receive consumer bill payments via text, and the BNPL phenomenon is opening up new growth channels.

Everyware recently added BNPL financing options for many existing clients of its bill payment service. One is Jaguar Land Rover Frisco, a car dealership in Texas, which has experimented with sending routine bills with a new pay-over-time option.

Everyware is also piloting text-based checkout offers with merchants through Visa Installments, the card network's emerging BNPL option which gives consumers the opportunity to spread out payments on a specific purchase.

Offering BNPL loans via text at the checkout point is more suitable for big-ticket purchases involving car repair, health care and travel, according to Everyware CEO Larry Talley.

More than half of U.S. consumers read and respond to texts within five minutes of receiving them, according to a survey of 3,000 consumers EZ Texting of Santa Monica, California, conducted this year.

Adobe Stock

Care now, pay later for medical treatment

Pasadena, California-based Scratch Financial this month raised $35 million in Series C funding to expand its instant pet care financing model to humans. Norwest Venture Partners led the round, bringing the company's total funding to $108 million since its launch six years ago.

Scratchpay offers instant financing for veterinary or medical services, with payments divided into five payments due every two weeks with no interest and no hard credit check. Loans of up to two years are also available with varying terms.

Customers receive a payment plan offer on their phone or via email with their bill, and they can track payments through the Scratchpay app.

Scratch says it has integrated with about a third of the veterinary practices in the U.S. and Canada and is now expanding to reach human elective medical service providers in dental, optical and chiropractic care.

Banks add BNPL options behind the scenes

Visa and Mastercard are working to directly offer BNPL loans to consumers at the point of sale, with Mastercard Installments and Visa Installments gathering momentum in recent months as more banks sign on to these services.

Separately, banks are getting directly into BNPL through partnerships. Citizens Bank, which has long offered installment loan financing for products sold by Apple and Microsoft, has stepped up its point-of-sale financing offers to consumers since BNPL loan demand began to surge in 2020.

The Providence, Rhode Island-based bank last year added a virtual line of credit customers can tap to make repeat installment-loan purchases with a single merchant without filling out a new application or juggling different loans. Citizens is expanding the service to more electronics sellers and health care providers.

Citizens also works with Jifiti, a Tel Aviv-based company with U.S. operations in Columbus, Ohio, which creates white-label consumer financing tools connecting merchants and lenders.

Jifiti's technology enables merchants to offer short-term BNPL loans for lower-ticket purchases, longer-term loans for bigger-ticket items and revolving loans. The company recently teamed up with Fortiva Retail Credit to bring a turnkey approach to merchants, and Jifiti is also in discussions with other banks that want to offer a range of financing solutions to merchants.

BNPL comes to B2B

Business-to-business merchants have long offered financing options to customers, but the buy now/pay later approach is creating new opportunities within existing business models.

Flexbase, a San Francisco startup founded in 2020 which operates a financing hub for businesses, this month launched a BNPL option for B2B merchants called Flexbase Pay. The option gives merchants 100% of the revenue for the purchase at the time of the sale, while customers get a 60-day interest-free window before making payments.

The first merchant to sign on to Flexbase is DOZR, an online construction equipment rental marketplace based in Canada, which is extending Flexbase Pay to contractors across the U.S.

Berlin-based Billie — which is backed by BNPL pioneer Klarna — is also exploiting opportunities with BNPL loans to B2B companies that have faced cash crunches during the supply-chain glitches over recent years.

Resolve, a San Francisco-based B2B spinoff from BNPL fintech Affirm, also enables merchants to embed "net terms invoicing" into checkouts with instant credit-checks.

Buy later, pay later?

Apple promised to make a splash in the buy now/pay later market with a product called Apple Pay Later, originally promised to roll out in the U.S. as part of this year's iPhone launch. But it never materialized, and the company has provided no explanation or timeline for the delay.

Bloomberg reports there are "fairly significant technical and engineering challenges" that could delay the product's launch into the spring. The article notes that other features have been delayed, but Pay Later is the only one for which Apple did not provide a time frame.

When Pay Later launches, Apple could avoid some of the financial crunch that other BNPL lenders faced by financing and servicing the loans in-house, experts say. It would also benefit from the built-in marketing boost of being the first choice for consumers who use Apple Pay or Apple Card. Merchants wouldn't even have to sign up; "it just works using their standard Apple Pay implementation," Corey Fugman, senior director of Wallet and Apple Pay, during a presentation at Apple's Worldwide Developers Conference in June.