Chapter 1: What is Buy Now, Pay Later (BNPL) and how does it work?
Welcome to Seeking Alpha's Wall Street Breakfast, where we cover the top news for investors every morning. It's good to have you here on this Friday, February 13th. I'm Julie Morgan. As we embark on this holiday weekend, you've probably noticed the sales and maybe even already given into the power of advertisement.
And soon, likely next week, that special item will grace your doorstep in a box that's being put together as we speak. One of the options you may have noticed at checkout was for buy now, pay later. The concept isn't new. Credit cards have been around since the mid-1900s, essentially a way to buy now and pay later. The New York Fed says Americans' credit card debt has topped $1.28 trillion.
But we aren't talking about credit cards today. We're talking about that option you have when you buy something online, and it allows you to choose how to pay. Credit or debit cards are always welcome. Some merchants also allow you to use an account that is built into your phone, like Apple Pay. Still others offer the option we're focusing on today.
Chapter 2: Who are the primary users of BNPL services?
Buy now, pay later, using Affirm, Afterpay, Klarna, or PayPal to name a few. Those companies allow the consumer to split their payments into smaller amounts, zero interest, no credit check. Usually, the set number of payments is four with no interest, but if you need more time, you could be hit with interest, and the companies show you how much up front. So how do they make money? The retailers.
The Federal Reserve Bank of St. Louis says the revenue for the firms and Klarna's of the world comes primarily from the fees they charge retailers for using buy now, pay later services. It notes the fees are often higher than those charged by credit card companies, but retailers are willing to pay these fees to increase sales. So something must be working.
Buy Now, Pay Later is an option for regular everyday purchases like groceries. You can even pay for a vacation over time. Not to mention something that has been on repeat in my news feed for the past couple of weeks.
Chapter 3: What are the financial risks associated with BNPL for younger consumers?
Rent Now, Pay Later. Yes, you can now split your rent into two payments. The Fed's latest information about the economic well-being of U.S. households was published last summer for 2024. It showed that 19% of 18 to 29-year-olds have used Buy Now, Pay Later. The same percentage holds true for those 30 to 44. The number drops to 16% for those 45 to 59, and 8% for 60 and older.
How many of them made late payments on a Buy Now, Pay Later program? For the youngest demographic, 32%. The next oldest, 25%. For those 45 to 59, the number drops to 21% who said they made a late payment. And for the oldest demographic, 12% made at least one payment after the due date.
There's a question about whether the consumer's financial house is in order based on their use of Buy Now Pay Later. So first of all, it definitely looks by the behavior of consumer that the consumer might be weaker. That's Julia Ostian, an analyst at Seeking Alpha.
Chapter 4: How do BNPL companies like Affirm and Klarna generate revenue?
She suggests that not everything is as straightforward as it appears.
Based on the numbers that were reported by Walmart or Amazon, for example, and I was actually covering the recent earnings of both of these stocks, I didn't see an actual sign for that.
A firm CEO confirmed this on its Q2 earnings call earlier this month, saying the consumer they're seeing to date is quite healthy. They're borrowing money and they're willing to pay it back. The New York Fed found that about 72% of financially stable users and 89% of financially fragile users had made multiple buy-now-pay-later purchases in a 12-month period.
They caution that this puts the consumer at risk for overextending their budget. The reasons for using these services include the fact that the payments are spread out, zero interest, the loans are easy to access, it's convenient.
The more people buying and selling on the internet, the more this system will be working and the more this industry will be growing.
Which brings us to the investment side of things. Julia says when you weigh a firm against Klarna, a firm is a buy in her opinion.
I have to say that Affirm is pretty special here and Affirm doesn't have that high interest rates. Also, it has much less hidden fees than some of the newer and I could say maybe more progressive companies like, for example, Klarna that just had an IPO.
But not everyone feels that way. Out of all the most recent analysis, there's one contrarian view. Merck Research on Seeking Alpha rates Affirm a strong sell.
It says with a 30 to 50 percent downside on Affirm, they maintain a sell position due to Affirm's disadvantages in an increasingly multi-option checkout and larger-than-expected UK expansion challenges that will hinder the street's lofty expectations. Affirm went public in January of 2021. It was founded in 2012. Affirm is priced at $54.26, down 27% year-to-date.
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Chapter 5: What are the investment perspectives on Affirm versus Klarna?
Klarna was founded in 2005. It went public less than a year ago, in September 2025. Klarna shares officially started trading on the New York Stock Exchange at $52 each, representing a 30% premium to the $40 initial public offering price. As of the time of this recording, Klarna is trading at $18.34 per share. Klarna Next reports earnings before the bell on February 19th.
it is not profitable yet. And that firm is for the last few quarters already.
Julia says Klarna right now is just risky business.
But I really feel this way because of how risky Klarna still is. If the company at least would be closer to profitability or would show some of the more tangible results, let's say, I would definitely rethink my decision. And I think it will come really soon.
But Klarna could be a nice play. if the stock goes down slightly more. Juxtaposed Ideas on Seeking Alpha writes Klarna Bai with a caveat. The caveat is that interested investors observe the stock price movement for a little longer, attributed to the potential capital losses from the ongoing correction. That's one analyst, but overall, Seeking Alpha analysts rate Klarna a buy.
Wall Street also gives it a buy rating. It is not covered by Seeking Alpha's quant system.
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Chapter 6: What challenges and opportunities do BNPL companies face in the market?
Year-to-date, KLAR is down 36%. Each company has relationships with retailers, some exclusive. They each offer a card that expands your payment options from just online purchases to also paying in person. Klarna offers cash back for some merchants. A firm's cash back rewards program was discontinued a couple of years ago. The bottom line?
Buy now, pay later is a general lifeline for people who need to make a large purchase or even a purchase that currently is not sitting well on their bank account.
Now for a quick look at your Catalyst watch for the day. The New York Toy Fair will take place over the weekend. Leading brands such as Hasbro, Mattel, Spin Master, and Jax Pacific will unveil their 2026 product lines and highlight new licensing partnerships tied to blockbuster entertainment releases. And it's the one-year anniversary of the SailPoint IPO.
And finally, as a reminder, Monday is a stock market holiday, so no Wall Street breakfast on that day.
Chapter 7: What is the future outlook for Buy Now, Pay Later services?
I'll see you right back here on Tuesday. Enjoy your weekend. That's it for today's Wall Street Breakfast. Thanks for listening. To take full advantage of Seeking Alpha with coverage on significant stocks and ETFs, become a premium subscriber. Check out seekingalpha.com slash subscriptions. I'm your host, Julie Morgan. Go out and make it a great day.