The buy now, pay later (BNPL) market has experienced rapid growth over the past few years. It has gone from a niche payment method to one of the hottest trends in the payment industry. The market is attracting users from Gen Z to Baby Boomers. In the United States alone, the percentage of Gen Zers using BNPL grew from 6% in 2019 to 36% in 2021, according to Forbes. Millenial’s adoption of BNPL more than doubled while Gen X users tripled within the same period. A report on the Indian BNPL market indicates a fourteen-fold growth in the total value of loans issued to customers (Gross merchandise value) between FY 2019 AND FY 2021.
Generally, retail purchases increased from $20 billion in 2019 to about $100 billion in 2021. Many research points out that this trend will continue moving into the future. The “Global Buy Now Pay Later Market, Trends and Players 2022” expect the rapid expansion of the BNPL market to double between 2021 and 2026. The report also identifies that many market players are experiencing stronger growth than the industry’s average. For example, Klarna, one of the world’s largest BNPL specialists, added around 60 million users to its customer base in 2020. Affirm and Afterpay recorded about a 75% increase in sales each in the same year.
Understanding the growth
Installment payment is nothing new in commerce. Retailers such as furniture stores and car dealers allow their customers to pay off large purchases in installments. However, BNPL brings the concept into the digital age by enabling retail sellers to offer installment payments for any product, however small. BNPL works both online and in-store.
The smooth integration of BNPL services into E-Commerce is checkouts is one of the driving forces behind the massive adoption of this payment method. BNPL offers other attractive financing options such as interest-free pay-in-four loans and an easy application process. Other motivating factors for customers include the ability to purchase items that would otherwise be beyond their budgets. Additionally, they avoid paying credit card interest.
BNPL by numbers
According to Juniper Research’s projection, BNPL will grow faster than other payment methods, accounting for more than a quarter of the world’s online retail sales by 2026. Last year, the BNPL accounted for 9% of the global online retail sales. The younger generation accounts for more users, with the eMarketer report forecasting 44% of Gen Z. Millennials account for 37% of the total BNPL customer base in 2022. Gen X makes up 23% of BNPL users. Baby boomers make up only 9.4%.
The acceptance of BNPL spreads across the globe. According to a projection by Mercator, the US BNPL market will cross the $100 billion mark annually by 2024. In 2021, the volume of BNPL was $55 million. A survey by Bain shows the number of BNPL users in the UK was 10.1 million in 2020, a rise of about 75% from the previous year. In another survey by Visa, consumers in Canada increased their adoption of installment payments by 30% within the previous year. The size of an installment payment in Canada stands at 50 billion annually. A report by Bloomberg predicts that BNPL could account for $58 billion in sales in the next three years.
Moving into the future
Many surveys tip the BNPL market to continue with the impressive expansion rate it has witnessed in recent years. Here are some factors that could influence the growth of this new niche in the payment industry.
BNPL may expand across industries. BNPL companies are already differentiating by entering new markets such as B2B trading, travel, insurance, healthcare, blockchain, and cryptocurrency. Kalrna collaborated with Expedia Group to introduce “travel now, pay later” to customers. Affirm has also teamed with American Airlines to offer “fly now, pay later”. In another example, Walnut partners with healthcare providers to enable patients to pay medical bills in installments.
Banks will also enter the BNPL market. Banks are experienced in regulatory compliance and credit underwriting. They also have the data and customer base to compete effectively in the BNPL space. Banking institutions can also use the customers’ financial data to customize BNPL offers to suit their customer risk profile. Some banks such as Barclays, Revolut, Monzo, and Santander have already shown interest in the BNPL market. Santander launched a BNPL product in Germany called ‘Zinia’. The product enables shoppers to split their purchases into interest-free monthly installments.
Another issue would be regulations. Currently, BNPL is relatively an unregulated payment method. However, governments and other international regulatory bodies have started looking closer at BNPL. For instance, the Consumer Financial Protection Bureau (CFPB) ordered the five major BNPL providers to conduct a study on the risks and benefits of their solutions. The body is concerned with the risk of consumers accumulating debt too quickly.
PYMNTS reports that the United Kingdom is exploring whether the exemption in the Consumer Credit Act for delayed payments should or should not apply to BNPL. Additionally, the European Commission and Australia may also start regulating BNPL soon.
Final Thoughts
BNPL is expanding across industries. The payment solution seems fit for customers, especially the younger generation. The leading BNPL specialists, Affirm, Afterpay, and Klarna, are moving rapidly to meet the increasing demand for this service. Companies in other industries, such as banks, also set foot in this market. The future seems bright for BNPL, considering projections by various reputable surveys. However, we wait to see how government regulations will play out in defining the future of this novel payment method.
