PAYMENT METHOD PROFILES: BNPL 2
2.5 Buy Now, Pay Later Introduction
Buy Now, Pay Later (BNPL) allows users to receive goods or services immediately while managing payments over a set period of time, mostly interest free. BNPL has proven itself worthy of conversation and regulatory speculation; however, it has only grown to 5% and 1% of global ecommerce and POS transaction value, respectively, over the last several years. Brief History The concept of receiving a good before having the funds to pay for it goes back millennia. Farmers would, upon harvest in the fall, acquire necessary tools, labor, and supplies to plant their crops. Merchants within communities would offer credit to other members of their community on face value as both a social construct and business model. 581 However, as merchants began operating at the regional and in some cases national levels, a more practical system needed to develop. 582 In the mid-19th century, an era of western liquidity constraints, banking runs were common and fragmented note issuance negatively impacted inflation. 583 Merchants began offering layaway and installment plans for more expensive goods such as pianos, furniture, farm equipment, and sewing machines. 584 Despite a general aversion to buying on credit, these products were seen as cultural staples and productive rather consumptive uses of credit. 585 Singer Sewing Machines (Singer & Co.) pioneered the “Dollar Down, Dollar a Week” installment plans and used its popularity to become one of the first multinational companies during the late 1890s. 586 As American firms began to open locations in Europe, they brought along best practices used in the U.S., including installment plans; firms like Singer & Co., piano firms, and department stores began offering credit to consumers in Europe. 587 European retailers offered their own innovations such as having employees collect payment from individuals on a periodic basis on a more account management fashion as opposed to customer reporting in to make payments. 588 Various business models of the first iterations of Buy Now, Pay Later came to fruition in the early 20th century. 589 The predominant two were instances where the good was provided first in good faith of forthcoming payment (installment plans) or in reverse, where a product was reserved and a customer paid the total amount off before receiving the good (layaway). 590 By the 1930s, more than two dozen states had adopted Uniform Small Loan laws that sought to address the growing market of predatory lenders that filled the needs of consumers that otherwise had no access to more traditional credit in the banking system: a dynamic that persists to the present day. 591 During that same time frame, merchants began issuing charge plates that would serve as receipts for transactions involving store credit. 592 These would serve as the precursor to the development of cards as we see in the modern day. Car manufacturers began also offering financing for small businesses to purchase cars as the utility of motor vehicles shifted from the initial view of cars as a luxury item. 593 Automobile financing also spread in Europe which attracted United States lending firms to Europe and contributed to several European banks beginning to offer financing products for automobiles. 594 As the century progressed, the advent of credit cards allowed consumers to shop at multiple retailers with the same card and revolving balances gave way to private label store cards that could be used at individual merchants’ locations. 595 These cards would provide insights for merchants into consumer spending behavior and served to support loyalty programs to their customer base. 596 Merchants would offer more flexible payment plans, more palatable terms for loans, and generally discounts for using these cards. Department stores became the flagship landscape towards the end of the 20th century for private label cards. 597
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