The future of the BNPL market

How BNPL disrupted the market?

BNPL is one of the main trends in the financial industry, which has dramatically changed consumption habits and methods. Fintech start-ups in the BNPL industry advertise their services as a "better alternative" to credit cards.

Buy-Now-Pay-Later can be called one of the biggest phenomena in finance and banking right now, drawing comparisons with other growing industries such as cryptocurrency.

The global volume of BNPL transactions in 2021 doubled and the year before, the growth was also x2. Services for the uncomplicated division of the purchase amount into several equal parts are, if not becoming mainstream, then at least ceasing to be exotic, steadily gaining popularity.

BNPL heavily disrupted the market during the COVID-19 pandemic. As a result of the pandemic, many retail stores were forced to close temporarily and consumers began spending much more time at home, with commerce shifting to the digital world.

This has accelerated the growth of online shopping. In 2021, 17.8% of sales were from online purchases and by 2023, it's estimated to rise to 20.8%, an increase of 2% in the market share. The growth is projected to persist, reaching 23% in 2025, representing a 5.2% increase in five years. Overall, the global BNPL market is expected to grow to $467.34 billion in 2026 at a CAGR of 45.7%.

BNPL accounted for 2.1% - or about $97 billion - of that amount. That figure is expected to double to 4.2% by 2024, according to Worldpay.

Although BNPL payment methods were already popular before the pandemic, changing consumer habits and the rise of e-commerce have led to a significant upswing in the market.

This has been a boon for a number of companies in the field. For example, Klarna reached a valuation of $46 billion in a recent private fundraising round, PayPal acquired Japan's Paidy for $2.7 billion, and Square absorbed Afterpay.

Another reason for growth is the rapid transition of all possible processes online, the introduction of new technologies and the rapid development of e-commerce, which is partly a consequence of the first reason.

Finally, the third important factor is the change of generations of customers. Millennials are now active consumers of products and services, and they are gradually being joined by representatives of the young generation, who are naturally inclined to experiment and try new technological solutions. In addition, they don't want to overpay, so traditional credit cards, which used to be popular with the older generation, are losing relevance.

It is also clear why this service is beneficial for retailers and online stores: they get additional traffic and increase the average bill as well as purchase frequency. Moreover, BNPL can be used as an element of a loyalty program to popularize the products among your customer base.

Overall, BNPL has made a huge impact on the global retail market. It has given customers more flexibility in how they pay for things, and the ability to make larger purchases than they may have been able to afford if they had to pay for them all at once. This has led to a remarkable increase in consumer spending and helped companies drive more sales.

This aspect is also present in the sphere of B2B services. Companies can acquire working capital without undergoing a traditional lending process or providing personal guarantees. BNPL has impacted the B2B sector by offering a line of credit that businesses can use to purchase goods and services from participating merchants. This line of credit is often established through a partnership between a BNPL provider and a merchant, which acts as an alternative to traditional lending options such as bank loans or credit card systems.

Furthermore, BNPL has also allowed businesses to attract customers who may have been hesitant to make large purchases upfront. It also provided them with a way to offer customers financing options that can differentiate their services from the competition, both on B2C and B2B scales. Additionally, businesses which are using the BNPL financing method can gather valuable data on consumer spending habits, which can be used to create targeted marketing campaigns and improve their service offerings.

Taking a closer look at the B2B market, here is a list of reasons why businesses should consider to enter the BNPL sector:

  • Customers are more willing to use BNPL services than they are to take out loans from banks.
  • Average bill increases. The customer can buy more by splitting the amount of the payment and extending it over longer time periods.
  • Clear terms of use not only for customers but also for businesses.
  • Reasonable fees for BNPL usage which are often more profitable than promotions for customers.
  • Suitable for many industries. Through the BNPL service clients are willing to pay for common necessities such as food and entertainment.
  • Marketing activities supported by BNPL providers attract new customers, help promote and save budget, scale companies and popularize their services.

What markets have changed till now?

Apple has created its own BNPL service, Apple Pay Later. Its cardinal difference from all other BNPLs is its complete autonomy from the other usual participants of similar services. The service is fully provided and funded by Apple (as part of the Apple Wallet), regardless of the card-issuing bank, merchant or type of product or service.

Goldman Sachs was announced as a partner bank, and they are helping with the technical realization of the financial service. The client doesn’t have to have a Goldman Sachs account - BNPL will work with any debit card from any bank. The main thing is that it has to be linked to Apple Wallet, and the payment goes through Apple Pay.

Apple's BNPL works under the same scheme as most competitors. With each purchase, the customer will have two options to choose from:
  1. "Pay in full"
  2. "Pay later"

Generally speaking, due to the simplicity of its mechanics for the customer, BNPL will perfectly fit into the ecosystems of big brands.

Apple has considered the correct timing when joining the BNPL market - they waited for startups to probe the market before making investments. Currently the big companies intend to flood this market with money and steal a significant piece of the pie from both BNPL-startups and more traditional banks with their credit cards and installment cards.

Over the past two years, almost all major U.S. retailers have integrated BNPL payment services into their online stores. The list of companies includes Amazon, Walmart, Kroger, Target, Apple, Nike, Adidas, and others.

What markets will be changed because of BNPL soon?

BNPL is the natural product of multiple important trends, such as digitalization. The following tendency is enough to say that BNPL has a huge potential ahead of it, even in spite of increasing regulatory attention, bank competition and other policies.

BNPL services will gradually turn into online service providers and retailers, offering users or client companies to choose stores that cooperate with the platform and buy goods directly in the app. BNPL companies will enter new markets. For example, Scalapay began cooperating with jewelry and luxury stores in Italy.

Competition in the market is heating up: every player wants to eventually gain control of payments around the world. Companies that originally built their business around the BNPL services are now facing increasing competition from payment systems and well-known card issuers who do not want credit cards to become obsolete, yet they are willing to prepare and be ready if they do.

There are many options for implementing BNPL, and the details are important for both consumers and merchants, as well as for the companies offering the services on the B2B scale. Becoming a leader in the sector requires reaching a large number of merchants, achieving consumer adoption, implementing powerful AI underwriting, and having expertise in online marketing. Each of these aspects requires resources for successful implementation, therefore the main concept of the industry is: invest now, win later.

Companies on the BNPL market are actively collaborating between each other. A few years ago Affirm acquired Returnly, a service that provides returns for merchants and supplies them with analytics. Potentially, this information will help to increase sales.

In B2C, Klarna, another big player in the industry, is actively pursuing deals with high-profile retailers such as H&M, Walmart and Sephora. The company has also acquired several projects, including Toplooks, which helps retailers create customized marketing images and messages, and HERO, which helps retailers communicate with customers through text messages, videos and online chats.

Speaking of the B2B sector, examples of services that are actively working on market include Splitit, a BNPL solution for B2B that allows businesses to pay for purchases in installments, without incurring any interest or fees, and Payright, an Australian BNPL service that specializes in B2B financing solutions, offering businesses the ability to purchase goods and services and repay the amount in installments.

BNPL approach helps to optimize the services that are available on the market into a single transaction with full transparency that promises to connect buyers, sellers and companies with instant credit, improving the commerce and sales markets.

On a B2C scale, BNPL services provide clients the opportunity not to change their shopping habits, managing their budget wiser. This approach helps to conduct deals that are more strategic for both sides of the agreement.
On a B2B scale, businesses are able to scale their services and attract new customers by providing better terms and conditions. Many companies center their business model around BNPL to survive in the competitive market, increase sales and revenue.

Although various companies have entered the market in different ways, at the end of the day BNPL is not just about one-time transactions, but about managing customer relationships. It's a new form of credit. Behind it lies an ambition to dominate the future of shopping with an efficient range of data and transactions, shifting the standards of the financial industry.

By connecting payment by installments, companies, such as the ones from the retail industry, are gaining a new active audience, especially from the younger generation which includes millennials and zoomers.

Online shopping, among other digital services, is becoming more and more popular, and the global BNPL market is growing. It is predicted that by 2030, these services will become the traditional way to pay for services, becoming more usual on both B2C and B2B markets.