"Buy Now, Pay Later" Market Is Heating Up

Written by Jennifer Clark
Posted October 27, 2021

Two of the world’s biggest private fintech companies — both unique in their own ways — have just agreed on a strategic partnership as the "buy now, pay later" market continues to heat up. 

The two companies that I’m talking about are Klarna and Stripe.

The main service that Swedish company Klana offers is its "buy now, pay later" payment method to merchants. This has become a popular form of payment for many consumers. Basically, the company offers customers credit toward their purchases during their checkout process. 

Before agreeing to terms and placing your order, Klarna breaks down your total into monthly payments and how long you’ll be expected to make those payments if you pay the minimum. Essentially, it divides the total of your order into a more manageable monthly amount.

For the people who have no problem paying monthly and understand their financial obligations, being able to buy now and pay later is a helpful alternative. 

"Buy Now, Pay Later" Grows E-Commerce Sales

This method of payment has boosted the e-commerce industry. People who would have normally abandoned their online shopping cart because of the hefty total cost are now able to get what they want at a smaller price point that’s spread out over a certain number of months. 

The "buy now, pay later" market has grown with e-commerce. The COVID-19 pandemic caused a surge in e-commerce, and with the option to buy now and pay later, consumers weren’t hesitant to make big purchases, like that couch they’d been wanting. Those otherwise expensive items were now not so overwhelming.

According to Allied Market Research, the global "buy now, pay later" market was valued at $90 billion in 2020 and is expected to reach $3.98 trillion by 2030 — representing a strong CAGR of 45.7% from 2021–2030. 

This market is growing quickly and into something massive, which could explain why Klarna and Strip are joining forces so both these companies could gain a significant portion of that $3.98 trillion. 

Klarna’s chief technology officer, Koen Koppen, had this to say on the partnership:

Together with Stripe, we will be a true growth partner for our retailers of all sizes, allowing them to maximize their entrepreneurial success through our joint services.

Joining Forces to Become Market Leaders

Stripe offers an online payment processing and credit card processing platform for businesses. Stripe allows for safe and efficient processing of funds through a credit card or bank account to the sellers’ account.

Klarna and Stripe joining in a partnership puts both companies in a position to reach more customers. 

Stripe reported how early results indicated that merchants saw a 27% increase in sales on average after integrating with Klarna — along with an average order value increase of 41%. 

The option of having Klarna integrated throughout Stripe’s platforms could create more sales for merchants, which would bring more money to both Klarna and Stripe. Not to mention more merchants who want to be a part of Stripe’s platform can give their customers the option of using Klarna as a form of payment. 

Competition Heats Up

Without a doubt, this market is getting very competitive right now. A deal between Stripe and Klarna could put both companies in a strong position against their competitors.

Recently, Square (NYSE: SQ) acquired Australia’s Afterpay for $29 billion, and PayPal (NASDAQ: PYPL) has built out its own "buy now, pay later" service and has plans to buy Japan’s Paidy for $2.7 billion.

According to data from CB Insights, Stripe’s latest valuation put it at the $95 billion mark. And Klarna is right behind Stripe as the second-largest fintech globally, with a valuation of $46 billion.

Both companies are expected to go public in the near future, and knowing that they could be the top players in the "buy now, pay later market" would attract strong investor interest.

I’m going to be keeping an eye on these companies. Their expected public debuts are going to be massive.

In addition, both companies will most likely pursue more strategic partnerships and acquisitions so they can continue their quest to become and remain fintech giants, especially in the buy now, pay later market.

Until next time,

Jennifer Clark
Pro Trader Today
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