By Luke DowneySeptember 13, 2021

How to play the “buy now, pay later” craze

“Buy now, pay later” (BNPL) has taken Wall Street by storm. It’s a cool new way for businesses to entice new customers… and higher ticket item purchases.

Today, I’ll tell you all about BNPL… and highlight some of the companies that have leaned into this new wave in the payments space. 

Plus, I’ll give you two exchange-traded funds (ETFs) to play the trend…

What’s “buy now, pay later”?

It’s just like the name sounds. It’s a new payment option available to customers at checkout. Instead of paying for items in full with a debit or credit card, consumers can buy the item now and pay for it in installments. 

Most of these services offer four installments at no interest. Others let you pay smaller chunks over longer periods of time at a low interest rate.

In most cases, consumers are getting a better deal vs. putting the balance on a credit card, which often comes with an annual rate (APR) above 20%. 

That’s very attractive to younger consumers with less disposable income… and enough savvy to be wary of the high interest rates that come with credit cards.

The BNPL market has also been heating up thanks to a COVID-depressed economy.

Big retailers see the writing on the wall… and are making massive deals to get ahead of the trend…

Two weeks ago, Amazon (AMZN) inked a partnership with Affirm Holdings (AFRM). The news sent Affirm’s stock soaring from around $68 to nearly $100 overnight.

And less than a week ago, Affirm announced blowout quarterly results and guidance… sending its shares up another 34% in just one day.

You can see the recent action in the stock chart below…

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I’ve circled Affirm’s two recent announcements. The big green bars indicate Big Money pouring into the stock on those days. 

But Amazon and Affirm aren’t the only players focused on the BNPL trend…

Last month, Square (SQ) announced it would acquire Afterpay—another fintech firm focused on BNPL—for $29 billion. And just last week, PayPal Holdings (PYPL) announced a deal to buy Japanese BNPL firm Paidy for $2.7B.

It’s insane how many deals have happened lately. Big companies are worried about getting left behind if they don’t include BNPL as part of their service.

Wall Street believes this new way of paying can take a bite out of the massive credit card industry… 

And BNPL is still relatively small, with estimates showing it accounted for just $39 billion of lending in the U.S. in 2020. This means there’s plenty of market share to go after… and plenty of room for future growth.

PayPal, Square, and Amazon see this shift happening… and want to compete for consumer purchases. 

If they ignore the trend, they risk losing customers to other platforms that offer these cheaper financing options. 

There are two ETFs that give exposure to the theme: the ETFMG Prime Mobile Payments ETF (IPAY) and the Global X FinTech ETF (FINX). Both of these funds focus on the mobile payments and ecommerce industry. 

IPAY holds 47 stocks involved in digital payments, including Square (6.8% of the fund), PayPal (6.6%), and Affirm (4.1%). The fund has gained 33% over the last year. 

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FINX owns 54 different stocks, including many of the same names as IPAY. Its holdings include Square (5.9% of the fund), PayPal (5.5%), and Affirm (2.7%). 

And as you can see below, it’s done even better than IPAY over the past year… surging nearly 40%:

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The BNPL trend is growing like wildfire. And while you could get exposure with single stocks like Amazon, Paypal, Square, and Affirm (I personally hold PYPL and SQ, and PYPL in managed accounts)…ETFs like IPAY and FINX are fantastic options for those who’d like to diversify across the explosive fintech industry… and lower their risk.

Luke Downey is editor of Curzio's The Big Money Report, which recommends the best long-term growth stocks. Luke honed his strategy over many years at Wall Street institutional derivatives desks, and as co-founder of investment research firm Mapsignals. Luke is also an options instructor with Investopedia Academy.

P.S. For my absolute favorite growth stocks… check out my newsletter, The Big Money Report

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