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The buy now, pay later (BNPL) space has started to heat up recently, headlined by Amazon announcing their partnership with fintech company Affirm. Other retail companies including Walmart, Target and Ikea have all invested into the growing sector, predicting BNPL services will continue to garner significant interest from consumers.

Digital payment providers, including Square and PayPal, have also been active in the BNPL space as the sector continues to explode. Though many of these companies are relatively unregulated and thus far untested by inevitable challenges like waves of bad debt, the recent flurry of M&A activity, as well as the growing adoption of digital payment methods, should cause investment into BNPL companies to climb further – potentially challenging traditional credit systems.

Related Stocks: Affirm Holdings, Inc. (AFRM), Afterpay Limited (AFTPY), PayPal Holdings, Inc. (PYPL), Square, Inc. (SQ)

BNPL Adoption Accelerating Among Ecommerce Giants

Buy now pay later (BPNL) services have been growing in popularity since the pandemic began, primarily among younger generations and consumers who do most of their shopping online. BNPL gives shoppers the option of paying for certain items in installments, typically without paying interest or late fees in many cases.

Per PYMNTS, the amount of people in the US using a BNPL service within the last 12 months has surged 85% to 29 million, up from 15.4 million in March of 2020.

PYMNTS research also found that 64% of consumers who use the service believe BNPL providers are more trustworthy than banks or credit card companies. The survey gathered responses from more than 7,000 individuals.

The growing adoption of BNPL is catching the attention of some major retailers, creating a flurry of M&A activity over the last few weeks.

Making headlines on Monday was Amazon’s announcement that they would be partnering with fintech company Affirm (AFRM). Affirm gives consumers the option to pay for items online in flexible installments with no late fees. According to CNBC, the new partnership will allow Amazon shoppers to break up purchases of $50 or more into smaller installments.

CNBC also noted that Amazon’s entry into the BNPL space comes as demand for the payment option rises and younger generations turn to BNPL options instead of traditional credit cards. Affirm’s stock jumped as much as 50% on the day of the announcement, while Amazon finished the day 2% higher.

Amazon can look to Affirm’s existing partnership with Shopify to see how significant an impact BNPL options can have on sales. Per Nasdaq, Shopify found that using Affirm’s BNPL solution resulted in conversion rates up to 50% higher, up to 28% fewer cart abandonments and 27% faster checkout times.

While Amazon’s recent deal has been the  most noteworthy, there are several other retailers that have adopted some form of BNPL tech on their platform. Walmart, top competitor to Amazon, partnered with Affirm back in 2019, offering payment plans that can last up to 18-24 months.

Further, Retail Wire writes that Ikea, Target and Best Buy are just a few of the growing number of retailers adopting BNPL options to keep consumers purchasing more expensive items without paying the full amount up front.

Digital Payment Providers Buy In, Regulatory Questions Remain

Heightened activity in the BNPL space can also be attributed to digital payment giants acquiring smaller BNPL players.

Last month, Square announced it would be purchasing BNPL giant Afterpay in a $29 billion all-stock deal. As of June 30, Afterpay has more than 16 million consumers and nearly 100,000 merchants around the world. TechCrunch noted that the acquisition…

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