An integral part of mall culture, fashion retailer Express is on a mission to transform for the digital age. It manages a bevy of social-selling influencers and uses data to personalize the browsing experience in its hot pink crop tops and sequined statement blazers. The final touch for this brand makeover? Partnered with Buy Now, Pay Later (BNPL) company Klarna to co-market digital ads and offer Klarna’s Pay in 4 product, which splits shopping spree expenses into four interest-free bi-weekly payments at checkout. “We want to give customers with a certain perception of us the opportunity to change that perception,” said Brian Seewald, SVP of e-commerce at Express. “We take the risk of buying from BNPL,” he says, adding that Express customers who choose Klarna have a higher average order value.

Buy now, pay later services that offer shoppers a financing solution and a credit card alternative have been adopted by more than 100 million people around the world in less than a decade. Most BNPL companies operate two consumer products: an interest-free offer that splits a purchase, usually a smaller transaction, into three or four equal payments; and interest-based installment loans, which spread the cost of larger purchases like furniture. Market leaders Affirm, Afterpay (which Block, formerly Square, acquired for $29 billion), and Klarna are ubiquitous on e-commerce sites today. Meanwhile, leading digital wallets PayPal and Apple Pay are pursuing their own BNPL products. Affirm’s shares plummeted 10% in July last year when Bloomberg reported on Apple’s intention to launch a pay-later product with Goldman Sachs.

Buy, buy, buy: Map the distribution

But for retailers like Express, who aim to reach $1 billion in e-commerce sales by 2024, BNPL is not just an additional payment option for consumers, it’s also an increasingly important marketing tool for retailers. Klarna is taking the opportunity to help merchants like Express by claiming dollars that would otherwise have been spent on Instagram or other digital ads. The company, which was valued at $45.6 billion as of February, uses its app and email newsletter to promote partner brands, taking a small portion of the leads generated. “We now speak to the Chief Marketing Officer as often as we do to the Head of Payments,” says David Sykes, Head of Klarna North America, “and that’s because the value proposition has evolved.”

Research boutique MoffettNathanson estimates that consumers will use BNPL to purchase nearly $80 billion worth of goods worldwide in 2020, including $20 billion in the US alone. In a nod to the growing importance of the sector, the big three credit agencies have announced that they will include BNPL payment histories by the end of the year; and the Consumer Financial Protection Bureau, which is in the midst of an investigation into the potential that BNPL is being used for data collection and leading to higher debt, among other things, may choose to weigh credit report requirements.

So far, the dominant narrative explaining BNPL’s success is that consumers – especially younger ones – are hungry for financing options that are less predatory than credit cards, with their 15% average APR. But the story has more to offer. Due to privacy changes, notably the tracking restrictions Apple made available to iPhone users in April 2021, retailers were unable to target customers through platforms like Meta, which owns Facebook and Instagram, as before. You also can’t uniquely attribute an e-commerce sale to a digital ad. BNPL companies can solve these two problems thanks to their increasingly robust apps and email lists. Additionally, they have an advantage over social media and digital advertising by understanding consumer creditworthiness and therefore their purchasing power. Even when undercutting credit cards, BNPL companies intentionally amplify consumer spending. Consumers can still get a fair deal from BNPL products provided they stay within budget and pay on time. But they should understand who BNPL companies actually work for.

In its early days, in the mid-2010s, BNPL had a relatively easy job. By offering to split a point-of-sale purchase into monthly payments, BNPL could reduce cart abandonment, a common problem with higher-ticket items, particularly those sold by startup brands like Casper Sleep and Peloton. Leading BNPL players claim that they can increase checkout conversion rates by 20% to 30%. “We are in the business of bringing [merchants] Attract new customers, increase their cart size, and increase their conversion at the point of sale,” said Max Levchin, co-founder and CEO of Affirm, last year.

That core promise—that consumers will spend more—is still at the core of the product’s appeal to retailers. For example, florist UrbanStems says that customers who pay with Affirm spend an average of $7 more per order. Retailers have been willing to pay BNPL companies around 5% to 6% per transaction for this increase, roughly double what they pay to process credit card transactions. “It’s wonderfully measurable, and that’s why [merchants] willing to pay a premium,” says MoffettNathanson partner Lisa Ellis. She compares BNPL to a modern business credit card upgrade. “You come for the funding, but you stay for the marketing.”

BNPL players follow the Store Card playbook, but with apps and email replacing mailers and friends and family sales. Afterpay, which generates a third of its transaction volume through its own app, launched a performance-based ad platform last August. Nick Molnar, Afterpay co-founder and co-CEO, says Afterpay Ads, as it’s called, aims to help retailers identify consumer categories where they’re underperforming. Now that Afterpay’s merger with Block is complete, “it’s going to be incredibly interesting to bring commerce into the Cash app,” he says, referring to Block’s bank-like offering, which has 44 million users that Afterpay markets to can.

Afterpay will have company as competitors try to build their own modern, digital malls. Try BNPL once, download an app to track your payments and suddenly you will receive notifications about unmissable offers. Affirm says its shopping app has generated more than 10 million referral clicks on retailer sites. PayPal, the largest of the diversified BNPL players, has also started to focus on e-commerce; In 2019, the company acquired Honey, a shopping and rewards platform, for $4 billion.

David Oksman, VP of marketing and e-commerce at Samsonite, a PayPal partner, anticipates a “future without cookies” — meaning those bits of code used to track people online will be gone . He believes tools like PayPal’s Pay in 4 can create customer loyalty and has experimented with BNPL mentions on social media. “Like everyone else,” he says, “we look at new channels.”

“The recent change at Apple and their advertising tracking will likely become a footnote in what remains a fundamental lynchpin in online advertising,” Affirm CFO Michael Linford said at a Citi fintech last November -Conference to Investors. “Retailers are under pressure”

By February, that “footnote” looked more like a chapter heading, after Meta forecast that Apple’s privacy changes would cut its revenue by $10 billion in 2022. The announcement offered a glimpse of the dollars that will be available to BNPL companies that have mastered the dark arts of digital marketing, but also served as a reminder that BNPL startups are playing someone else’s game and have little power who set rules.

Apple and Goldman have remained silent (and refused to break their silence on this story) about their potential BNPL plans. But Apple’s power to dictate whether it wants to go down the path that Affirm, Klarna, and others are taking is as profound as bringing Meta’s advertising business to its knees. Consider it:

In 2021, Apple Pay processed an estimated $90 billion worth of transactions for US retailers. If Apple converted even a single-digit percentage of that sum into Apple Pay Later, it would claim a sizable chunk of BNPL’s business — at one easy rate.