♪ caroline: from bloomberg world headquarters in new york, i'm caroline hyde. sonali: taylor riggs is off today. caroline: stocks soaring almost 30% after reporting -- the company is part of a by now, pay later universe that is completely taking off. these finance programs are our focus today.

americans spent almost $25 billion in these services, and we know cinelli -- we know sonali was one of them. the firm making deals here, there, and everywhere. romaine: we've been talking about this company. it is just on fire. after the initial ipo, you saw it kind of flatline a little bit over some concern about the business model and the fact they were tethered to just one big customer, that was peloton at the time, were 25% of its revenue. the news about its partnership with amazon, and then it came out with earnings here. it is basically guiding to something like 12.5 billion dollars to $13 billion going forward. this is a legitimate business. a lot of consumers are using this as the primary way to sort of buy things, not just because they need the lending power, the

borrowing power to do it, but why not? in some cases, not really paying interest. i'm always curious about the sustainability of this business model. a bank of america senior payments analysts covers the sector and we are glad he can join us to talk more about this -- a bank of america senior payments analysts who covers the sector, and we are glad he can join us to talk more about this. i'm curious about the sustainability. are these companies that are partaking in this -- are they taking on too much risk in the way they're extending these offers? >> we think this market has growth that is sustainable. we believe that a npl today is different than what it may have been in previous generations. if you think about private label

credit cards, the idea was you could have something now and pay for it later, the problem was a lot of people got in trouble with those products. if they did not pay their balance in 30 days, people started accruing interest. then there was interest on interest and late fees, and people ended up having issues with those products. the latest generation of true bu y now, pay later products works differently. it is a 4-payment typically over six weeks, simple installments, so it becomes a budgeting tool for consumers. romaine: how do they make money if they are not getting interest on these? are they getting money for the retailers? >> there are two ways they can

make money, either from the retailer or the consumer, and the mix between the retailer and consumer will depend on the type of loan product that the particular retailer wants to offer to the consumer, so in the case of a 0% apr loan, the retailer will pay a portion of the value of the transaction to the provider, and in other cases, the provider will make revenue off of the consumer interest and in those cases, the rate that the merchant would pay would be less. sonali: how can you get comfortable as an investor to know that these companies are underwriting these risks that consumers are taking on in an appropriate way, that they are not borrowing beyond their ability? >> very good question, and to some extent, the jury is still out because this latest generation of buy now, pay later

providers have not really operated through an extended down cycle of credit performance. last spring, the recession was extremely short. the economy roared back, and many of these economies took extra provisions, extra reserves against their expected loan losses that they've reversed because those losses simply did not materialize. i would say in many cases, these providers have advanced algorithms and artificial intelligence tools to help with credit decisioning, so to date, loan losses have been very manageable, but the true test will be one day when there is more of what i would call a typical recession. caroline: your latest note was looking at m&a in the space. we have seen square get acquisitive. we know this is a space where others are jostling for space.

is this going to be a super competitive spot? are we going to see more consolidation? >> i think competition will continue to be intense. the good news is the market is still relatively nascent. penetration rates are low. in the u.s., 2% of 3% of commerce spending is on buy now, pay later, so that is low. there is still a lot of room to penetrate. we believe there will be multiple winners over the long-term. i don't think there will be 10 or 12, but i think there will be more than one or two. jockeying for position now is to try and be one of those shortlisted long-term winners, and i would expect, as you referenced, that industry consolidation will be part of the be mpl -- bnpl story. romaine: from the consumer

perspective specifically, is there any sort of brand loyalty to these firms? most people's exposure if they go onto to a retailer's website and the option is there. do they really care if it is kla rna or afterpay or firm? >> we have seen an increasing willingness of customers to work with more -- more than one bnpl provider. for the most part, they work fairly similarly, and it is a pretty comparable consumer experience. we don't necessarily think that there is pure brand affinity. it is more about who has the real estate, if you will, at the merchant website that consumers are most often visiting, and that is where we think a firm has done a particularly good job of getting their button on to

walmart, target, and now amazon -- forthcoming. romaine: great perspective. great research out of the folks at bank of america. we are going to spend the entire half-hour talking about this, and we are going to hear from a ceo -- co-ceo, i should say, of a buy now, pay later service. he will talk about not only what his company is doing but what is happening in the space. this is bloomberg. ♪

caroline: today, we are focused on buy now, pay later. over the last few years, we have seen significant growth in purchases made this way. if you look at projections for the years to come, pretty staggering, actually. romaine: yeah, i thought the numbers were pretty interesting. you see a universe that was just about $3 billion a couple of years ago, and now about $100 billion a year here in 2021, so that is pretty phenomenal growth , and it makes you wonder what that 2022 level will look like. let's continue the conversation with adam as were of -- adam azra, -- adam ezra, co-ceo of buy now, pay later firm zip u.s.

your business model seems to be geared more toward customer fees and interest. can you explain the difference between zip and some of your competitors? >> there's a number of ways in which we generate income. we actually do not charge any apr or interest, and the majority of or fees are collected from the consumer -- i'm sorry, from the merchant. we do have the ability for merchants to pass on some of those fees. we do have marketing relationships with certain merchants with pate -- which pay us for referrals. there are a number of channels, but predominantly -- and number of channels in which we generate income, but predominantly, it is the merchant paying those costs. carolyn -- caroline: a lot of the new hedge -- new edge areas,

but what is interesting is one of your merchants is amazon over in australia. amazon we understand will be building its own point-of-sale service. we know apple is looking at getting in on the action. are you worried about these bigger companies coming in and doing it themselves? >> i think all this activity, what it is really telling us is by now, pay later --buy now, pay later is not a fad. it is a concept that is here to stay. i think we have seen in credit card markets, there are going to be a number of players. this is certainly not a winner takes all concept. this market is enormous. when we talk about payments, we are talking a trillion dollar opportunity. we are not necessarily competing against each other in buy now, pay later.

as you thing about the opportunity around credit cards, that is where we are really disrupting and that is where there is a real opportunity. sonali: what keeps bigger banks from getting into this in a significant way? the only way to get in at this point is to buy a firm like yours. >> we are starting to see some consolidation in the market and that has not been surprising. i think banks are really waking up and realizing that they need to take buy now, pay later seriously. in markets in australia, we are seeing a decline in credit card activity. most incumbents and banks are thinking of a way of how to enter the market. romaine: with regard to brand awareness and brand loyalty, i'm curious how you view consumers in this space.

when they go to these sites and start to buy something and see the option for buy now, pay later, if they see the option for other payment processors, do they pick based on loyalty to zip or klarna or just pick whatever is offered them by the retailer? >> if the retailer is only offering one option, the consumer is forced to pick if they would like to split that payment into four options, but we are seeing more and more merchants take on multiple players, and as we start to build this relationship with consumers, we are seeing increased loyalty and engagement with them and reference. that is certainly important to us -- engagement with them and preference. that is certainly important to us. high balances for those that are

performing and doing well on the platform. while there may be options and certainly some consumers may use more than one, i do believe there will be referencing -- p referencing over time. caroline: can you tell us which countries are ahead of the curve in this type of way? which areas and geographies have not yet adopted it and the cultural issues as to why? >> the concept of buy now, pay later in installments has existed for a long time. the concept of digitizing it has started in australia, and zip started about eight years ago. the australian market is certainly one of the more mature markets.

bond buying in the u.s., we are seeing very similar trends. in the u.k., markets are seeing buy now, pay later really take off. then you see asia, markets in the middle east, these are markets we have a presence in certainly seeing the same trends and following closely behind. caroline: we want to thank you very much, adam ezra, co-ceo of zip u.s. strike -- stripe is discussing a public listing with bankers in 2022. they raised about $600 million in march, giving it evaluation of about $90 trillion, making it

the most valuable nonlisted startup in the united states. looks like it could be looking at public markets as soon as 2022. coming up, let's talk about anything that is new to finance. who needs regulations? apparently these buy now, pay later do. we will discuss it next. ♪

romaine: today, we are focused on buying now, paying later. a simple concept, but a lot of programs and apps have taken it to a whole new level. regulators now may be looking at this and saying, maybe we should rein this in. caroline: or maybe make sure gen

z, who are really going into this at the moment -- almost 1% of the share of internet users will they be from that cohort -- are they protected enough? in some cases, there are interest rates we paid as well. we have been -- our next guest has been tracking this part of the story for us. are regulators worried about the amount of share that buy now, pay later is taking in commerce? >> the biggest word here is caution. across the board, regulators are urging caution. the concern is that it's really easy with a really flexible, a really accessible, a really

simple low friction financial product to essentially overextend yourself, right? and get into a lot of debt. regulators are urging caution. the consumer protection bureau in a blog post this summer essentially urged people to be careful. in the united kingdom, a regulator had a report essentially saying they were concerned about the ability to overextend. they need to have an eye on it, they need to follow it because it is so easy to kind of fall into a pit without noticing. >> one reason this is such an interesting time is that the biden administration has said that consumer protection within financial services is going to be a key issue. what exactly are they warning consumers about? what should look out for when they are using these products? >> i think again, the biggest concern is that if you are not paying attention to how many of these products you can look into

-- and it is not just regulators. consumer advocates for a long time have been talking about these products. i think the concern is first of all, it is really easy to just pick up a lot of different -- because these are essentially loans, right? there's also the fact that these all come in different forms. they are packaged different leak, so they have different terms attached. if you go to one platform like paypal, it will be different than the firm -- the affirm program or the klarna program. you have to keep track of all these different playbooks. not only are you taking on all these loans you may not be super familiar with, but each is slightly different than the others. romaine: how much transparency is there in the buying process? when people click on these things, how much information are they getting?

>> that's a great question. what is interesting about buy now, pay later is a lot of times, these companies are offering themselves as more straightforward, more transparent than credit card companies. the deal is you are getting exactly what you see on the box, no hidden fees. i don't necessarily the payments are not as may be as transparent as they could be, it is more that these are so new. i had not heard of a lot of these cases, being part of this gen z group, more willing to try more things on the internet. a lot of these names are new to me until recently. the devil may be in the details, but these are just new products. they are different than what we have seen before, and they come in so many different flavors, essentially, right? it can be difficult to keep up with and keep an ion, but i think the argument these companies will make is they try to be as transparent if not more

than other financial services companies. caroline: thank you so much, talking all things buy now, pay later. romaine: i'm kind of in the buy now, pay now camp. we have already seen anecdotal evidence from folks saying they got caught off guard from the interest they paid or the timing of the payments. [crosstalk] caroline: we should ask sonali. sonali: the interest rate is what you're talking about with anything. i mean, it is beyond words.

caroline: not getting any returns on your money, probably do not want to be offering any no interest payments. spend wisely this weekend. sonali: "bloomberg technology" is up next. ♪

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