Fragmentation Gives Way to Consolidation Across Pay-Later Landscape, Says Splitit CEO

The pay-later ecosystem has evolved through the past few years, with a broad range of solution providers and available options. The idea of paying over time means different things to different consumers.

Not all that long ago, the landscape was limited to the pure-play, nonbank platforms — the Affirms and the Klarnas of the world. However, as Splitit CEO Nandan Sheth told Karen Webster as part of the “Pay Later Unpacked” PYMNTS on Air series, “things are fairly fragmented right now,” especially for consumers who look to use transactional credit, seeking longer-term loans from a bank, and then for one-off solutions, moving toward traditional point-of-sale (POS) lenders.

Merchants are especially cognizant of the pressures on consumer spending in the current macro climate, so they want to drive loyalty and make transactions more palatable and affordable over time.

Lines are blurring as banks move into the pay-later space and firms like Klarna offer a broad array of financing options and ink pacts with financial institutions (FIs) and with platforms such as DoorDash. There’s already some evidence of commodification of paying over time, but no matter the combinations, a few principles hold true as consumers seek to discover merchants and find deals.

“If I’m a dominant credit provider, whether it’s Klarna or a J.P. Morgan Chase, there’s a value and a utility in consolidating the credit needs of a consumer off of my [own] platform,” Sheth said. “You’ll see more of that happening, and consumers will find it easier to deal with their trusted credit providers.”

Different Ways to Pay Later

Affirm is serving that utility through flexible credentials and flexible terms that allow different ways to pay — such as pay now, pay over the short term or pay over a longer term, Webster said.

Splitit works with banks to split the cost of purchases via credit card into interest-free installments, and such providers “are not driving consumers to adopt new credit,” Sheth said. “We’re letting them use a payment method they enjoy and get rewarded for that payment method, with ample protections in place for the merchants. It’s all about driving repeat purchases for our merchants and, in many cases, driving incremental value for that transaction.”

The economics and the optionality consumers value are on display in Klarna’s documentation to go public on the U.S. markets. In its filing with the Securities and Exchange Commission, Klarna chronicled how it started in Sweden two decades ago and more recently moved across Europe and into the United States.

“We’ve learned what BNPL, from a FinTech that’s a consumer lender, is providing to merchants and consumers,” Sheth said.

Seventy-five percent of the company’s top line comes from merchants, which underscores the scaling of merchant acceptance and consumer adoption, he said. The 75% revenue contribution indicates that not only are merchants paying for the 0% installments, but they’re paying for consumer adoption too, through marketing and other fees. Against that backdrop, the profitability of the model is still a work in progress. (Klarna’s net profit in 2024 was $21 million, a 109% improvement from a net loss of $244 million in 2023, per the filing.)

Drilling down a bit, 23% of Klarna users pay in full, the filing showed, offering evidence that the commerce ecosystem being forged is not predicated solely on financing but on the actual shopping and discovery experience.

“To get the consumer to start their buying journey not at the merchant but at the platform is difficult, and Klarna has done a good job of that,” Sheth said.

What the Issuers Want

The issuers have experimented with pay-later options primarily at the post-purchase level but are becoming interested in being integrated at the point of checkout and being embedded into the consumer journey itself, he said. However, merchants may balk at integrations with dozens or even hundreds of banks.

“To get to critical mass, an orchestration layer” and partnership with providers in the mold of Splitit “are the way to go,” Sheth said. “The banks are seeing this as an opportunity to participate in those ecosystems … educating the merchants and helping them make an informed decision is what we try to do.”

The Role of Banks

Looking ahead, banks are going to play a much larger role in pay later at checkout, and this push will be backed by partnerships with FinTechs, he said. Omnichannel pay-later options will be critical, as will rewards to keep driving consumer behavior and repeat purchases. Platforms will offer a greater number of embedded options.

“You’re seeing it with eCommerce platforms with Shopify, but you’ll start seeing this in non-traditional platforms too,” he told Webster. “… Merchants will continue to pay a lion’s share of the flexibility because they want the conversions and the opportunity for the additional basket sizes.”