Across the world, buy now, pay later (BNPL) services have emerged as a prominent payment form in the last five years. Mobile-savvy, younger consumers approach e-commerce with an on-demand mindset, and shopping without credit cards and making smaller, multiple payments through BNPL is appealing. Sellers see it as a powerful growth tool with seamless checkout and transparent pricing. BNPL providers benefit from advances in data availability, machine learning, and AI. That information gives BNPLs sophisticated credit evaluation methods for real-time approval and credit access to consumers as a traditional credit alternative. COVID-19 played a role in the past two years to catapult BNPL providers forward. Consumers flocked to e-commerce, giving BNPL the opportunity to capitalize on demand.
Global industry maturation and consolidation is also afoot. In just the past six months, Square acquired Afterpay, and Affirm, a U.S. BNPL leader, expanded its partnership with Amazon. In Southeast Asia, unicorns such as Grab and Traveloka are joining the fray, while India’s Pine Labs’ move to acquire SEA start-up Fave satisfied its appetite for expansion.
To learn more about the buy now, pay later landscape, GLG brought together a panel of payment experts to discuss BNPL compared with alternate payments, challenges in the sector, and what the future holds for BNPL across the U.S., Europe, Australia, and Southeast Asia. Edited excerpts of this session, hosted by Heather Lim, Associate, Client Solutions at GLG, and moderated by Vibhu Arya, follow.
Vibhu Arya: Let’s look at the BNPL growth curve. How do you account for this dramatic rise?
Katie Foos: We are seeing buy now, pay later skew younger to both Gen Z and millennials. The ubiquity of mobile phones and the convenience make BNPL attractive. BNPL has also become a conversion marketing tool for brands.
Ian Yamey: The mindset of people using BNPL, particularly the pay-in-four model, falls into three categories: those using it for convenience and the ability to go through checkout quickly versus pulling out a credit card; people who are cash-flow constrained but want to buy a more expensive pair of shoes; and the swayable people (a prime reason why merchants love BNPL). BNPL has the same effect that a large discount might have, pushing people to purchase and increasing average order value.
Vibhu Arya: How are traditional lenders responding to BNPL competition?
Katie Foos: In fintech, innovation comes in cycles. BNPL came in as a new idea, but an incumbent won’t move to the forefront immediately. In the U.S., companies such as Affirm, Klarna, and Afterpay drove engagement with merchants. Companies like American Express and Chase added post-point-of-sale buy now, pay later options, and PayPal came out with pay-in-four terms, but innovation is about the integrated experience. Traditional lenders tried to fight back within the constraints of their business model and were too slow to react.
Regulation is different in every country, and it’s prohibitive sometimes to set up. You will see global expansion where the return on investment is worth it. Part of that will also happen through acquisition. In addition, you’re likely going to see regional players rise in Southeast Asia, where they know local markets.
Vibhu Arya: Can the card networks stand up to the buy now, pay later juggernaut?
Katie Foos: Visa and Mastercard will be fine. They support issuers to incorporate a BNPL option. People are repaying through alternate means. You’ve got the direct-to-consumer debit cards that each company issues. A lot of transactions are considered incremental because you’re increasing conversion rates. They’re losing out incrementally, but it’s shifting in terms of overall growth in adjacent areas that are net new.
Vibhu Arya: What does the future BNPL landscape look like?
Katie Foos: We’re seeing the maturation of some BNPLs. They’re capturing merchant agreements as fast as they can, but as that begins to slow, they’re looking at expansion and how to migrate to in-store. Eighty-five percent of U.S. purchases are in-store. No one’s really solved for it.
BNPLs seem to be positioning themselves as an alternative to credit. They’re adding savings accounts and debit cards, and I wouldn’t be surprised if they moved into the credit realm. I don’t see it happening tomorrow, but over time, if they continue to build out their financial suite, that could definitely be a possibility.
Ian Yamey: These platforms are in the 10 million-plus customers. There’s a play where one of the platforms says, “We’re going to do things at cost or at a small loss because it’s our way of getting 50 million people onto this platform.” The onus is on them to turn into a shopping launchpad or another way to make up the revenue. Being able to acquire millions and millions of consumers at the Gen Z and millennial age is valuable, and that’s underplayed in the industry.
This article was adapted from the GLG Roundtable “Unpacking Buy Now, Pay Later Adoption.” If you would like access to events like this or would like to speak with payment experts like these or any of our approximately 1 million industry experts, please contact us.