Affirm just revealed its IPO paperwork. Here's a look inside the buy now, pay later frenzy, the new twist on financing that is a must have for everyone.

By Shannen Balogh

Point-of-sale financing has been around for a while. From in-store layaway to store-branded credit cards, retailers have always used financing as a way to convert browsers to buyers. 

But over the last several years, a cohort of fintechs have cropped up offering a new way for retailers to boost sales: buy now, pay later. From no-interest, two-week installment plans to longer-term financing, fintechs like Affirm, Afterpay, and Klarna, to name a few, have won over millions of consumers and tens of thousands of retailers with their digital-forward, easy-to-use alternatives to credit cards.

Wednesday marked another big step for the market. Affirm published its Form S-1, the document detailing its planned initial public offering. 

Among the revelations from the document, the fact Peloton represented roughly 28% of its total revenue for the most recent fiscal year.  

It's no secret that e-commerce is on the rise with continued growth year-over-year for the last decade. And like other digitally-driven trends, the coronavirus pandemic has only accelerated growth in the e-commerce segment.

In 2019, e-commerce accounted for 11% of total retail sales in the US. In 2020, total retail sales have been down, but in the second quarter this year, with brick-and-mortar retail largely shut down, e-commerce grew to 16% of total retail sales, reflecting a 44% increase quarter-over-quarter, according to the US Census Bureau.

As consumers get used to doing more of their shopping online, they're also coming around to BNPL products.

"Credit availability actually closed a great deal under pandemic conditions. So that accelerated buy now, pay later, which has emerged as the new thing at the point-of-sale, as an alternative way to actually get credit, which was important," Ben Savage, partner at Clocktower Technology Ventures, told Business Insider. 

At the same time, consumer behavior, especially among younger consumers, has shifted away from credit to debit, Savage added. And these trends have proven to be tailwinds for BNPL providers, many of which have seen traction with Millennial and Gen Z consumers.

Read more: PayPal's buy now, pay later launch is kicking off the next wave of adoption. Here's what it means for startups and banks competing in the space.

BNPL has become a must-have for retailers

This time last year, online shoppers at retailers like Asos or Casper were likely to see some version of "pay in four installments" as an option at checkout, offered by fintechs like Affirm, Afterpay, or Klarna, to name a few. But today, it seems like these BNPL buttons are everywhere, becoming a must-have for e-commerce.

Over the last several months in particular, BNPL fintechs have seen explosive growth. In May, Afterpay hit five million active shoppers in the US after just two years in the market, which is now a larger market than its native Australia. The coronavirus, no doubt, has played a significant role. Afterpay nabbed one million new customers in just a ten-week span in the second quarter, when the pandemic was at its height. 

Affirm and Klarna, too, have more than five million users.

Fintechs, who have spent years acquiring customers, are now looking to build brand stickiness with their own apps and loyalty programs.

Incumbents like PayPal and American Express, well-equipped with brand awareness and loyalty, are leaning in with their own versions of a point-of-sale financing product.

While BNPL products from fintechs and incumbents vary slightly on interest, fees, and credit decisioning, one thing is clear: consumers are looking for ways to stretch payments over time, even on small purchases.

What remains to be seen is where the industry will go next. For now, retailers are entering into exclusive deals with BNPL fintechs, paying them fees around 3% to 6% for each transaction. The promise of BNPL is to increase order values and the likelihood an online shopper actually buys. Those economics may be compelling in a time when total retail spending is down and advertising budgets are tight. 

But traditional players like PayPal are offering buy now, pay later features at no additional cost to retailers. And with many credit-card companies, like Citi and American Express, installment financing options happen post-transaction, so merchants are just paying the typical payments processing fees.

"The economics shifted a bit," Savage said.

With many BNPL players, offering point-of-sale financing becomes a cost to merchants. Merchants could offer their own financing options like branded credit cards, but the cost to build and maintain that financing could be prohibitive for smaller retailers, even if they earned revenue from the book of credit. 

"The merchants are essentially now paying in a way that really was not part of point-of sale finance 10 years ago. Or, to the extent merchants paid for it 10 years ago, it was all done through a promotional discount," Savage said.

As point-of-sale financing grows in popularity in the way credit cards did, merchants may not longer be willing to pay those fees. 

Be it through higher prices on the goods sold or a surcharge at the point of sale for using a BNPL solution, merchants could start to reconsider the way they manage the cost of offering these services. 

"If you play the movie forward five years and everything goes to buy now pay later, and let's say it all still looks to the consumer like a roughly zero interest rate thing, someone is paying the cost of the money. If it's the merchants paying the cost of the money, it's going to show up in higher prices someway," Savage said.

Here's a look at some of the key moments in the BNPL space over the last several months:




Klarna CEO Sebastian Siemiatkowski in London
In June, Klarna launched a loyalty program for its users.
David M. Benett/Getty Images for Klarna


Afterpay partners with buzzy brands like Boohoo to offer BNPL online.
Caroline McCredie/Getty Images



  • Sezzle partners with Marqeta to launch its card-issuing platform for in-store use of its point-of-sale financing.
  • Private-equity firm Silver Lake is reportedly leading a group investing $650 million into Klarna, according to The Wall Street Journal
  • Affirm raises a $500 million Series G led by GIC, a returning investor, and Durable Capital Partners LP. It also launches an interest-free bi-weekly financing option.
  • QuadPay raises a $200 million line of credit from Goldman Sachs.


  • Klarna signs 5-year contract with Macy's as its exclusive buy now, pay later partner. Macy's also invested in Klarna.
  • Affirm announces it had confidentially filed with regulators for an initial public offering. 
  • Etsy adds Klarna as its buy now, pay later partner for purchases between $50 and $10,000.


  • JPMorgan Chase launches a buy now, pay later option for its credit card customers.
  • Affirm becomes payments giant Adyen's buy now, pay later partner.
  • Affirm publishes its Form S-1