COVID-19 Report

COVID-19 and the surge of “buy now, pay later”

Wednesday, July 29, 2020 • 1:00 PM EST

Key Takeaways:

1. While the US “buy now, pay later” (BNPL) market is still in its infancy, it has experienced a 197% YoY GMV increase (ending Q2 2020).
2. The US market has four major providers: AfterPay, Quadpay, Klarna, and Sezzle. Afterpay dominates the space with 70% market share, with the remaining 30% split nearly evenly between the remaining three providers.
3. COVID-19 had little impact on the demographics of BNPL users. BNPL usage continues to skew to a younger, female demographic, which is likely due to the fact that BNPL providers have thus far focused primarily on partnerships with female focused ecommerce brands.
4. While some consumers appear to use BNPL when experiencing high credit saturation, many others appear to use the offering as an alternative to having a credit card, or simply for preference.  Across our panel, 75%+ of customers choosing to use BNPL for payment have the funds to cover the full cost of purchase.

Over the past few months, we’ve noticed an increase in usage of instalment payments. Instalment payments - or “Buy Now, Pay Later” (BNPL) as it’s commonly known - allow consumers to split the cost of a transaction over several payments at no added cost, so long as the payments are made on time.

The no-interest BNPL model, which has seen success in other global markets, has become readily available in the US as local and international players eye the market for global expansion. Younger demographics, particularly college students, have proven to be fertile grounds for this new payment method as the global recession of 2008, the CARD act of 2009, and increasing aversion to credit has meant that they find themselves with fewer credit cards in their pockets than previous generations. As a result, instalment options offered in real-time during checkout have thrived. Given the impact of COVID-19, we began to explore whether BNPL providers would experience a sudden wave of growth, and whether this growth would come from consumer demographics that were experiencing tough financial circumstances. 

The current state of BNPL providers in the United States is fairly slim: there are only four players that account for the majority of transactions in this space: AfterPay, Klarna, Sezzle and QuadPay.

Note: For the purposes of this report, we excluded Affirm. While Affirm has a BNPL Product (Affirm Go), its primary offering is a real-time loan with an APR, which makes it materially different from the other providers in this report. If you’re interested in seeing Affirm’s performance over the last few months, please contact us directly.


As it stands today, AfterPay takes the lion’s share of the US market with ~70% of all BNPL transactions. The company has leveraged partnerships with top fashion brands to build a large base of awareness with consumers. Klarna, Sezzle and QuadPay split the remaining 30% of the market fairly evenly amongst themselves.

Purchase Frequency By Month

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Data via Cardify

We looked at the total Gross Merchandise Volume (GMV) processed by these four providers and found that while they all appeared to be experiencing substantial GMV growth, QuadPay and Klarna’s GMV increase was anomalous. 

GMV Trend - Weekly

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Data via Cardify

Upon further investigation, we found that QuadPay’s GMV surge in late 2019 was propelled by Fashion Nova, a massive fashion retailer, offering the BNPL provider on their checkout. Outside of processing for Fashion Nova, QuadPay’s volumes are largely immaterial among our panel of users. Klarna’s GMV increase in March proved harder to explain. While we were unable to identify the root cause of Klarna’s surge, we suspect that a single brand is driving the shift as the BNPL market is fairly nascent and prone to large shifts as the providers land new retail partners.

To better illustrate the level of growth in this space, let’s take a look at each provider in isolation and this year’s volumes to last year. Based on these views, we can see that AfterPay, the Australian giant which entered the US market two years ago, has grown 162% YoY, while US-native Sezzle has grown over 209% YoY.

YoY Growth (monthly)

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YoY Growth (monthly)

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Car Rentals
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Data via Cardify

YoY Growth (monthly)

Airlines
Car Rentals
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Data via Cardify

YoY Growth (monthly)

Airlines
Car Rentals
Lodging

Data via Cardify

While it’s clear that some growth in the BNPL space can be attributed to the effects of COVID-19 (namely shifting consumers online where BNPL offerings are much more prevalent), the rate of growth we’re seeing far exceeds levels that could be solely attributed to the pandemic. 

New customers appear to be the source of growth for QuadPay and Klarna, further validating our suspicions that their recent growth is likely the result of new merchant partnerships that have brought their BNPL offering to new audiences.

GMV Trend - Weekly

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Data via Cardify

That said, Sezzle’s customer acquisition figures increased by 20% since the start of the year, while AfterPay has experienced a slight decrease in new customer cohorts. In spite of this, both companies are seeing record GMV levels, leading us to suspect that consumers must have increased their usage of BNPLs. This suspicion is further validated when we look at the frequency of purchase. In June 2019, the average BNPL user made ~3 purchases per month using such providers. In June 2020, that figure had stood at 5 purchases per month, a 67% YoY increase.

YoY Growth (monthly)

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Data via Cardify

YoY Growth (monthly)

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Car Rentals
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Data via Cardify

AfterPay appears to have the largest base of high-frequency users, though the other players are not that far behind.

Purchase Frequency By Month

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Data via Cardify

So who are the consumers flocking to these services? Are young shoppers adapting BNPL as a result of credit aversion, or are dire financial circumstances driving people to seek out BNPL as an alternative form of credit? In order to answer this question, let’s begin by looking at the demographics breakdown of BNPL users. 

With respect to gender and age, BNPLs skew to young females. Women make up over 70% of all BNPL transactions within our panel. This is likely the result of several underlying factors, but a primary driver is likely that BNPLs are much more prevalent across female-focused brands as many of the BNPL providers have set their eyes on the lucrative and female-dominated fashion & beauty verticals. All this to say that it’s not necessarily that young females are more prone to choose BNPL, merely that the option is presented significantly more frequently. This trend seems to continue across all youth-focused brands, as Gen Z and younger millennials account for over 80% of all BNPL transactions.

YoY Growth (monthly)

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Data via Cardify

YoY Growth (monthly)

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Car Rentals
Lodging

Data via Cardify

With regards to income, BNPL users tend to fall into the lower income brackets. Prior to the pandemic, 61% of BNPL users in our panel were making less than $50,000 (post-tax). Since the economic devastation of the pandemic, that figure now stands at 70%.

YoY Growth (monthly)

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Data via Cardify

YoY Growth (monthly)

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Car Rentals
Lodging

Data via Cardify

We looked at BNPL spending for those that experienced full income loss, a partial loss, and no change to their income as part of COVID-19. All groups increased their use of BNPL as % of spend during the pandemic, with those that experienced a partial or full loss of income utilizing BNPL the most. When comparing the increase in GMV by change in income, we saw the total GMV from those that experienced full income loss increase at much lower rate levelling off at a similar level to 2019 holiday spend, compared to those that experienced no change or partial income loss who surpassed their 2019 holiday BNPL spending.

YoY Growth (monthly)

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Data via Cardify

YoY Growth (monthly)

Airlines
Car Rentals
Lodging

Data via Cardify

To explore the financial state of BNPL users further, we decided to take a snapshot of the consumer’s financial well being at the time of their first BNPL transaction. 

First, we looked at their credit utilization rate, a metric which measures the consumer’s credit saturation at the time of a BNPL transaction.

Note: The “credit utilization rate” is calculated as the consumer’s balance at the time of their first BNPL transaction, divided by their highest balance ever. A more accurate definition would be to divide the consumer’s balance by their total spending limit, however, this data is not available to us.


At first glance, it appears that our findings corroborate concerns that credit-saturated consumers leverage BNPLs. Over 62% of BNPL users were carrying 75%+ of their card balance unpaid when they first engaged with instalment payments.

AVG Basket Trend - weekly

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Data via Cardify

While this may appear to validate concerns around the underwriting practices of BNPL providers, that would be an oversimplification of the situation. There’s no doubt that a segment of the population is over-reaching financially and leveraging BNPLs as an alternate form of credit. Many however, appear to use BNPLs as the only source of deferred payments as they do not appear to have a credit card at all. This would support the industry’s argument that most of its users don’t have or want a credit card at all. 

In addition to this, when we looked at the debit card balance of consumers, it was quite clear that the vast majority had more than enough funds in their debit accounts to cover the entirety of their purchase, without instalments. Across all providers, only 21% of consumers did not have enough funds in their checking/savings accounts to cover the full price of their purchase. Most had 5x the total amount of the purchase, leaving us to deduce that selection of BNPL is often a matter of choice, not desperation.

Purchase Frequency By Month

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Data via Cardify

The BNPL space will certainly be one to watch in coming months being a relatively new market in the US that is experiencing strong growth. We anticipate the market will undergo many changes with new retailer partnerships driving growth and shifts in demographics. As new partnerships are made, it will be interesting to watch the impact on market share, especially for the three players (Klarna, Quadpay and Sezzle) who together own 30% of the market and are looking to take on the biggest incumbent, Afterpay, with 70% share. Data suggesting that consumers are opting for BNPL over owning a credit card or when they have enough cash to cover their purchases will also be interesting to watch, as it points to BNPL being not a new tool for debt constrained consumers but rather a flexible, sustainable payment method. Stay tuned as we continue to research this space in the coming months.