The BNPL industry is a segment of the financial services market that allows consumers to make purchases and pay for them in installments. In the Buy Now Pay Later business model, companies offer payment platforms or services that enable consumers to select the BNPL option at checkout. These companies collaborate with merchants to integrate their payment solutions into the website or point-of-sale system of the merchant. The customer can then choose the BNPL option and conclude the transaction, with the payment platform managing the installment plan and collecting payments over time.
Rapid Growth and Expansion of the BNPL Industry
BNPL emerged as a method of payment predominantly in consumer retail. Aferpay, Affirm and Klarna gained popularity by providing users with interest-free payment arrangements for their purchases. The Buy Now Pay Later service providers expanded their scopes by forming partnerships with retailers and e-commerce platforms.
To differentiate themselves in the market, BNPL companies began introducing new features and services. This included extended repayment terms, loans with interest, personalized financing options, and additional financial services like savings accounts and budgeting tools. As the BNPL industry expanded, regulatory agencies began to prioritize consumer protection and responsible lending practices.
Technology was utilized by BNPL providers to enhance the user experience and facilitate operations. Integration with e-commerce platforms, mobile applications, and digital wallets facilitated BNPL payments. Advanced data analytics and artificial intelligence improved risk assessment and insurance underwriting processes.
Driven by consumer demand for flexible payment options, it is anticipated that the BNPL industry will continue to expand.
What is Driving the Expansion of BNPL Industry
Changing Consumer Behaviour and Preferences
Customers are seeking alternatives to conventional credit providers and high-interest loans, and this is reflected in their selection of buy now, pay later industry providers.
Many BNPL providers offer an interest-free option, which is attractive to consumers; this is why 80% of BNPL users chose it over other payment options.
Increased eCommerce and Online Shopping
The expansion of the eCommerce industry has been cited as one of the factors for BNPL's ascent and future growth. In the rodent race of e-commerce, it is essential to distinguish yourself and gain an advantage. Providing payment options that are easy on the wallet is one of the most effective methods to increase sales and conversion rates.
Convenience and flexibility offered by BNPL
It offers flexible payment options regardless of the item's price. These attract consumers who wish to purchase costly items and pay for them over time.
Rise of Mobile Payments and Digital Wallets
Mobile payments and digital wallets simplify customer checkout. Users may pick BNPL as a payment method in mobile payment applications or digital wallets without entering payment information. This easy checkout procedure is the reason driving the Buy Now Pay Later business model popularity.
Statistical Analysis
The global market for purchase now, pay later is expected to increase from $22.86 billion in 2022 to $90.51 billion by 2029, at a compound annual growth rate (CAGR) of 21.7% during the forecast period. According to the analysis, the global market grew by 48.3% more in 2020 than it did in 2019.
The market size of the Buy Now Pay Later industry (BNPL) is projected to reach $309.2 billion by 2023, with a compound annual growth rate (CAGR) of 25.5% over the forecast period. As a greater number of consumers embrace online purchasing, the market for BNPL is bolstered by the rapid expansion of online payments.
Current Market Landscape
Highly fragmented is the Buy Now Pay Later industry. Nonetheless, as the number of new businesses and start-ups increases, competition is progressively intensifying. Among the major competitors in the BNPL market are Klarna, PayPal, Zip, Paytm, Afterpay, Affirm, and Layby. These prominent companies have implemented various strategies, including mergers & acquisitions, product portfolio expansion, contracts, and collaborations, in order to increase their market penetration, geographic presence, and thus their industry dominance.
In March 2023, for instance, MANGOPAY extended its strategic partnership with PayPal to provide markets with expedited access to PayPal's global payment services. Additionally, in April 2023, PayPal and Venmo collaborated with Visa to test its new Visa+ programme. This new service aims to facilitate the safe and swift transmission of funds between diverse person-to-person (P2P) digital payment applications.
Major Players in the BNPL Industry: Characteristics & offerings
Zip: Zip (previously QuadPay), a BNPL Industry leader, provides payment solutions for Apple, Amazon, Walmart, and Target, as well as special retail relationships. Zip offers interest-free choices for education, pets, shoes, and travel across several platforms and in physical stores.
Sezzle: Sezzle provides installment payment solutions and key differentiators for its consumers. Sezzle Up reports payment history to credit bureaus, helping shoppers improve credit. They've also teamed with Ally Bank to provide longer-term financing, illustrating again that payment flexibility may drive growth.
Splitit: Splitit, based in New York, is the only Buy Now Pay Later industry leader that lets customers use their credit. Customers may balance out cash flows by paying bills with their own credit or debit cards utilizing its installment program. Splitit's ability to split payments without interest, applications, or fees and develop credit makes it appealing to customers and safe for retailers. Splitit partnered with Alipay to provide eCommerce customers installments in Asia in 2023.
Affirm Inc.: Affirm, BNPL industry platform, is simple and works for most internet purchases. Amazon, Shopify, Walmart, Bloomingdales, Neiman Marcus, and dozens more provide shopping.
Affirm will soft-check your credit score and payment history if you choose financing. Your loan amount, payback duration, and monthly payment will be notified when your application is finalized. Then choose and buy. If you don't pay within seven days, your application will be rejected. Website or app payments are accepted.
Flex: Housing is crucial. In today's unstable economy, many individuals must decide between rent, food, and other necessities. Landlords reportedly get $5 billion in late fines annually. Flex recognises these issues and covers your rent and offers flexible payment alternatives without hidden fees or interest to avoid late fines.
Check out the Buy Now Pay Later Business Model to know how it works!
Regional Trends and Market Share
North America
In 2021, the BNPL industry in North America dominated the market and generated the most revenue, a total of $90.9 billion, accounting for approximately 20% of global sales. The development of the region is attributable to the presence and investments of major actors such as PayPal, Sezzle, and others.
Europe
Europe is expanding swiftly due to the rapid adoption of online purchasing services by European consumers. According to a report by World Pay, the buy now pay later industry in the United Kingdom is growing at a rate of 39% annually due to e-commerce sales. PayPal introduced its Pay in 30 Days BNPL service in Germany in January 2022. The service allows consumers to buy up to $1,115 in 30 days without incurring additional fees.
Asia-Pacific
The BNPL industry in the Asia-Pacific region has experienced robust development over the past four quarters, bolstered by the increased penetration of eCommerce.
In the region, BNPL payments are anticipated to increase by 22.8% annually to $1,92,434.1 million by 2023. Asia-Pacific's BNPL industry will continue to grow over the medium and long term. The adoption rate of BNPL payments is anticipated to increase at a CAGR of 13.6% between 2023 and 2028. In the region, the BNPL Gross Merchandise Value will increase from $1,56,740.8 million in 2022 to $3,63,437.9 million in 2028.
Other emerging markets
The Buy Now Pay Later industry in the Middle East and Africa are expected to experience substantial growth during the forecast period. This is primarily attributable to a rise in online purchasing among consumers and an increase in digital payment adoption among the country's population.
Impact of BNPL on Various Industries
Real Estate
The BNPL app development has changed retail customer buying habits. Consumers have few alternatives for major purchases or financing them over time. BNPL solutions provide customers more freedom and convenience, impacting their purchases. BNPL lets customers buy goods and services without paying beforehand. This makes higher-priced things more affordable to more people.
Integration of BNPL options within the retail industry has demonstrated a positive impact on businesses' conversion rates and average order values. Recent projections indicate that retailers can increase conversion rates by 20 to 30% by implementing BNPL.
Learn More on How to Build Your Own Buy Now Pay Later App!
eCommerce
The increasing prevalence of Buy Now Pay Later industry financing has enabled retailers to increase their sales volume and average basket size. In fact, businesses that implement some form of BNPL financing see an average conversion increase of 20-30%. As two of the most essential KPIs for any sales-driven business, the increase in conversion is the most direct and consequential benefit. They have a direct impact on profitability and expansion, and they motivate investment in improved products and services.
FinTech and Financial Services
By providing alternative financing options to consumers, the Buy Now Pay Later business model has upended conventional credit models. In lieu of credit cards or personal loans, BNPL enables consumers to make purchases and pay for them over time without accumulating interest charges, or with credit card-like interest rates.
Financial institutions can partner with BNPL service providers to offer BNPL services to their consumers, giving them an additional payment option and enticing new customers. This partnership enables financial institutions to broaden their product offerings and capitalize on the BNPL business model's rising prominence.
To conclude…
The Buy Now Pay Later industry is a financial services segment that enables consumers to make purchases and pay for them in installments. In regions such as North America, Europe, and Asia-Pacific, the BNPL industry has experienced significant growth. Nevertheless, there are still numerous unexplored markets with high growth potential, such as Latin America, Africa, and other emerging markets. As the Buy Now Pay Later industry grows, authorities and legislators will likely tighten monitoring and establish consumer protection and fair practices legislation. This could include measures concerning the transparency of fees and terms, responsible lending practices, data privacy, and dispute resolution. To preserve industry confidence, BNPL providers must adapt to changing rules.
BNPL providers may include sustainability into their business models as customer demand for sustainability rises. This may entail partnering with eco-friendly labels, supporting social causes, or providing rewards for environmentally conscious purchases. Ethical BNPL providers may attract ecologically and socially conscientious customers and stand out in the market.
