Buy Now Pay Later (BNPL) is one of the world’s fastest-growing alternative payment methods (APMs), expected to account for nearly a quarter of all global ecommerce transactions by 2026.
In this blog, we reexamine the factors fueling the surge in BNPL, exploring the potential impact of interest rates, regulatory changes, and heightened competition on the BNPL landscape. Additionally, we delve into the considerations for merchants contemplating the integration of BNPL, guiding them in selecting a suitable provider.
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Why is BNPL a hot checkout choice?
The concept of BNPL isn’t new. Credit cards, after all, are a form of BNPL in the most literal sense. But the modern form of BNPL is different. Powered by apps rather than paperwork and offering instant decisions, it’s designed for the digital generation, allowing them to spread payments with minimal friction, complexity, or fuss.
The value of using BNPL at the checkout for consumers is clear. It lets them defer or split the cost into specified installments, often with no interest. In stark contrast, credit cards, burdened by high interest rates, offer a less favorable alternative. Notably, BNPL is non-discriminatory, allowing nearly anyone to use it regardless of their credit score, albeit with potential effects on the credit limit they receive.
For merchants, offering BNPL has been shown to drive double-digit increases in online order conversion and value. And it’s relatively risk-free. The BNPL company pays them up front (minus fees), handles chargebacks, does the underwriting, manages installments, and collects payments.
Tracking growth: Who’s using BNPL and why
Fewer barriers to entry, lower fees, and a seamless user experience are some of the many reasons BNPL services have gained popularity.
And the trend shows no sign of stopping.
Projections indicate that the global BNPL market will grow from $30.38 billion in 2023 to $122.19 billion by 2030, a Compound Annual Growth Rate (CAGR) of 22.0%.
From retail confidence booster to responsible budgeting tool
Retail was the first—and remains—the killer application for BNPL. It lets online buyers defer payment to see the product up front before parting with their cash, removing a barrier to sale, especially in the fashion sector, where buyer anxiety about quality, size, and fit often stifled conversion.
Shoppers also took advantage of BNPL’s financial flexibility to raise their spending power—to avoid FOMO, make the most of seasonal discounts, and take the pressure off their credit cards.
BNPL brands responded with new options, letting them split payments so they could budget for larger spending over longer periods. These developments took BNPL into new retail sectors, replacing intense paper financing for higher ticket items like furniture and electronics.
Recently, BNPL has expanded its reach beyond the retail sector, becoming common in sectors such as food delivery, healthcare, travel, and even services like car servicing and repair.
The demographics of BNPL users are also transforming. Although Millennials initially embraced BNPL, its allure has swiftly permeated across all age groups and markets. At Klarna, its fastest-growing age group has shifted to those over 60. Previously, it was individuals aged 40 to 57.
Overall, there are now 360 million BNPL users worldwide. And by 2027, this is expected to almost triple to 900 million.
There are now more than 100 BNPL brands globally
With so much consumer spend to play for, competition in the BNPL continues to intensify.
Klarna, Afterpay, Affirm, and Zip are the big four global providers. All four boast millions of users, with Klarna leading both by the number of consumers and retailers using its services.
There is also a thriving regional BNPL scheme, with specialist providers thriving in their respective markets. These include Tamara and Tabby in the Middle East, PayLater by Grab in Singapore, and Flipkart in India.
What’s next for BNPL?
Like many alternative payment rails, BNPL is still evolving. Here are three trends that will be important in shaping the ecosystem in 2024:
1) Regulators are considering tighter consumer protection
BNPL has largely fallen outside typical credit regulations. But that’s likely to change. Many legislators are concerned that consumers are becoming over-reliant on BNPL, incurring late payment fees and racking up bad debt.
In the US, the Consumer Financial Protection Bureau (CFPB) plans to increase the regulation of the BNPL industry. In the UK, regulators are currently exploring whether the exemption in the Consumer Credit Act for delayed payment of goods and services applies to BNPL.
Meanwhile, the European Commission has proposed a revised Consumer Credit Directive to bring some BNPL schemes within scope. And this is just the tip of the iceberg. Around the globe, legislators are similarly weighing up their options.
2) Economic pressure is impacting BNPL models
The BNPL business model emerged out of a low-interest rate environment, which enabled BNPL firms to raise funds at a relatively low cost. High-interest rates and concern that higher cost of borrowing or a drop in usage could impact BNPL profitability may force BNPL brands to rethink their business models or offerings. It may also reduce their appeal to potential investors.
3) Diversification, differentiation, and consolidation are becoming the order of the day
The industry is becoming increasingly saturated as tier-one retailers, tech giants, and banks look to muscle in on BNPL demand. Established players are looking to differentiate and diversify. They’re offering new user and merchant services, becoming retail marketplaces, and launching marketing services. Klarna, for instance, has acquired PriceRunner, Stocard, Apprl, Hero, and toplooks to help its consumers make informed decisions about purchasing products from their favorite brands at the best price.
Should merchants consider offering BNPL?
Chances are, if you’re running payments for a retail brand, you’ve considered offering BNPL. You’ve heard it can boost conversion by 20% to 30% and increase the average order value (AoV) between 30% and 50%.
However, despite its growing popularity, many brands, both large and small, have yet to embrace BNPL. If your business falls into this category but you're considering offering BNPL, here are some tips on finding the provider that best aligns with your business's and its customers' needs.
Finding the right BNPL provider
With so much choice, how can you ensure you pick the right option for your business? Here are some questions to consider:
- Does the BNPL brand resonate with your sector and target customers?
Look for a provider that proactively markets its brand in your key demographics. That way, they can act like an acquisition magnet and drive new customers to your site. - Do they have a large presence in your country?
Consider the provider's local presence in your country. There may be better choices than a global brand for your domestic market. - Can you use them cross-border?
International businesses can save time and money by choosing a BNPL partner offering a single integration for all their cross-border needs. - Do you need a solution that also works in-store?
Opt for a BNPL partner that allows omnichannel integration to ensure customers have seamless journeys and access the same services in-store as online. - Do they act responsibly and proactively protect the interests of customers?
Look beyond commercial figures. Take time to understand how the BNPL provider educates and supports consumers to help reduce the likelihood of misuse—and any knock-on impact on your reputation. - Is their fee structure clear, and how does it compare to other payment methods?
BNPL firms make money mainly by taking a cut from anything a retailer sells via their payment service (typically 2-8% of the sale cost). There is no point in gaining a BNPL uplift if fees and set-up charges eat up extra revenue. Read the small print carefully.
How Primer smooths the path to BNPL
With Primer, you can keep up to date with the latest alternative payment trends, including BNPL. Our no-code Universal Checkout allows easy integration of payment methods and the customization of checkout based on local consumer payment preferences.
That means you can start offering BNPL options without hassle or complexity and give your customers the payment flexibility they need when they need it most.
Final thoughts
BNPL has come a long way, and despite disruptive forces, there are no signs of its popularity waning with customers or merchants. If your eyes are fixed firmly on higher revenue and conversion, having BNPL on your list of checkout offerings makes sense.
But, for those who choose to delay, there’s always the danger that “bye for now” will become “regret it later.”
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