Like a barely contained wildfire, the Buy Now, Pay Later (BNPL) sector has been blazing across acres in recent days, bringing white-hot valuations and eye-watering acquisitions—and, like wildfires, it’s happening worldwide. This week, PayPal revealed it is purchasing Japan’s Paidy for $2.7 billion, in a “mostly cash” transaction (it’s funny that the OG digital money app wants to pay in cash). The publicly traded US BNPL giant Affirm announced on Friday 71% revenue growth for its fiscal Q4 and had, um, a pretty good day on the market; the five-day chart tells all:

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

And of course, all of this is dwarfed by Square’s purchase of Australian BNPL pioneer Afterpay last month for nearly $30 billion (click here for a detailed analysis of that deal).


As PayPal’s and Square’s acquisitions demonstrate, the BNPL wildfire is not limited to the US. Addi, a leading Latin American BNPL/payment firm, this week announced a new $75 million fundraising round, valuing the company at “nearly triple” what it was ostensibly worth all of 90 days ago. Also this week, it was reported that Revolut, one of the largest UK-based neobanks, is planning to enter the BNPL space; that report was quickly followed by a similar assertion from rival Monzo.

So BNPL is obviously in fifth gear—but does it broadly make sense? What used to be called “layaway” is handy for consumers, but is there all that much money to be made, given existing payment options? FIN, while understanding the appeal of BNPL, has long been somewhere between confused and skeptical regarding its meteoric growth. So this post lays out the bear case against BNPL, and then lets the ever-sharp Mark Palmer, managing director and fintech analyst at BTIG, talk us off the ledge.

What, exactly, is being acquired? The technology behind BNPL is not complicated. Indeed, PayPal has had a successful BNPL product for almost a year. Back in February, PayPal revealed that in the fourth quarter of 2020, about 2.8 million PayPal customers worldwide used its BNPL service for transactions worth more than $750 million, with 250,000 unique merchants. PayPal said at the time that its BNPL offering “represented the best start for any product it has ever released.”


An Arizent study from early this year found that PayPal was by far the leading BNPL provider in the US, with 45% market share. So there’s nothing magical about PayPal buying Paidy, and the customers being acquired aren’t all that numerous, given the price. PayPal to date has not dominated in Japan, partly for regulatory reasons, and partly because of cultural attitudes toward personal debt. According to SimilarTech, Japan–the third-largest economy in the world–is PayPal’s eighth largest market, well behind smaller economies such as Italy and Canada:

Given, then, PayPal’s existing BNPL dominance in its largest market, why spend billions to grab a company in a small market, when you might organically get those customers at a lower cost?

Are consumers into BNPL for the long run? There is so much data suggesting that, despite tremendous BNPL growth in recent years, consumers don’t trust it and fear its effects on their personal finance. This week, a survey found that one-third of US consumers who’ve used BNPL have fallen behind on a payment; within that group, 72% believe their credit score had suffered as a result. A British watchdog group found that one in 10 BNPL users have been chased by debt collectors. It seems at least possible that BNPL is a fad that will wear off once consumers realize it’s leading them to overspend.

Aren’t these valuations insane? Obviously a lot of factors enter into the valuation of a company being acquired, but if a buyer puts up 5x or 10x a company’s annual revenues, there’s a case to be made that it’s overpaying. The PayPal and Square BNPL purchases are north of 40x assumed revenues (and how those numbers are derived is a fun science we needn’t explore here).

That closes, as it were, the case for the BNPL prosecution. Now for the defense:

Consolidation and the quest for the superapp. Palmer puts the PayPal acquisition into a crucial context–this is fintech consolidation, which was entirely predictable. Indeed, the very first FIN post, in October 2020, referred to “when the fintech sector hits an inevitable consolidation period (a few years out, I’d wager).” Companies like Square and PayPal (and maybe Facebook and other nonfinancial companies) are trying to create all-singing, all-dancing superapps. BNPL is perceived to be a crucial component of that, and so paying billions is merited.

Scarcity is driving the prices. “The reality is, there just aren’t that many Buy Now, Pay Later platforms at scale that would be available to any of these companies,” Palmer asserts, and so throwing a couple of billion dollars to acquire them makes market sense. Indeed, word on the digital street is that even announced deals might be scuttled if even more generous offers come forward.

What’s ultimately being bought is not technology, but customers and their loyalty. Palmer argues that the number of active BNPL users of a company like Paidy are worth more than they might seem, because their loyalty and ability to repay has already been established. A company like Square or PayPal can combine that credit history with existing data and products to squeeze even more money out of those customers.

Whatever consumer suspicion exists, BNPL growth will power through. Palmer didn’t cite specific figures, but it’s very easy to find projections that BNPL is going to continue to burn bright. One study found that the global BNPL market will grow to $166 billion by 2023. Another report predicted it will hit $4 trillion by 2030.

Independent of the pro-con BNPL argument, it’s vital to note that Affirm still loses a lot of money. Its most recent SEC filing indicates a loss for fiscal year 2022 of between $135 and $145 million.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.