Buy Now, Pay Later Is Just One Piece of the Fintech Puzzle

Any questions related to fees raises the specter of lost revenue. But investors should keep in mind that fees charged to consumers aren’t necessarily a key part of the business model of BNPL as it evolves. Instead, shorter-term installment providers primarily aim to make money from what merchants pay to provide the service to shoppers. Merchants in effect can cover some of the credit costs with what they pay, in exchange for potentially making additional or larger-ticket sales.

Perhaps more notable is that the CFPB also said it was exploring questions about “data harvesting” from “valuable payment histories.” As the CFPB notes, competitive pressure on the rates merchants pay for split-payment services can necessitate other ways of making money. Along those lines, providers may increasingly need to do more than just provide a basic service to appeal to merchants, such as helping to direct shoppers to merchants or enticing shoppers with offers. It isn’t yet fully clear what concerns regulators have about BNPL versus digital payments in general in this regard, but the CFPB’s findings here bear close watching.

In general, the landscape continues to quickly evolve. The Wall Street Journal reported that

Equifax

early next year will begin recording payments on more BNPL plans. Widening this practice could have varied effects on the industry. If it helps give a picture of a consumer’s overall debt picture with BNPL included, it could even allay some of the regulators’ concerns.

More broadly, BNPL is rapidly becoming part of a wider business model.

PayPal’s

split-pay offering is part of its array of existing services for consumers and merchants. Afterpay is merging with

Block,

formerly called Square, making it part of a broad neobanking and payments platform. Affirm also offers longer-term payment plans through lending partners, and is rapidly expanding its financial services. So BNPL is often now just one part of a broader digital wallet “super app” strategy.

Many fintech stocks have had a wild and volatile year, so investors shouldn’t be shocked when stocks move sharply on any news. Affirm has nearly doubled from its initial public offering price in January. But going into next year, the key drivers of BNPL-related stocks may be much more particular than just the industry’s direction. The progress on Affirm’s big partnerships will be closely watched; Block and PayPal are huge fintech companies with their own unique drivers.

As big of a theme as “buy now, pay later” has been this year, it is only going to be part of the story going forward.

Write to Telis Demos at telis.demos@wsj.com