Retail finance has existed as long as there have been merchants selling goods. The latest innovation, commonly referred to as buy now pay later (BNPL), has actually been offered for a couple of decades. However, the combination of the service with mobile and credit at the point of sale POS both in-store and, more importantly, online has spurred its rapid growth among the shopping public. BNPL services offer to facilitate payments between merchants and their customers or suppliers via a short-term, typically interest- and fee-free installment plan. Any normal fees are typically charged to the merchant only, with the consumer charged very little or nothing for spreading the purchase payments out over a standard term. Early repayment is not penalized as the aim is to facilitate the purchase and spread payment by the consumer over multiple pay cycles.
While BNPL usage is concentrated among online shoppers, a key growth area has been in-store purchases. But as in-store purchases need to be made via a POS or mobile POS terminal, the spread of these terminals is crucial.
The business model for BNPL does not allow for widespread defaults or lengthy credit terms in most instances. The main driver of defaults is unemployment. So long as this remains low, the prospects for BNPL services are bright.
Age has been a major determinant of BNPL use, and the increased prominence of millennials in the economy means BNPL use should accelerate.
Reasons to Buy
Benchmark yourself against the rest of the market.
Ensure you remain competitive as new innovations and business models begin to emerge.
Learn about the key trends these digital players are targeting.
Understand the BNPL value chain, and the value it brings merchants and consumers.
Afterpay, Affirm, American Express, Ant Financial, Bread, Blispay, Citibank, Divido, Klarna, hoolah, Mastercard, PayPal, Visa, Zip
Table of Contents
Market size and growth forecasts
The Nordics and Australasia are the most mature BNPL markets
Growth over the next three years will be robust in all markets barring the Middle East and Africa
Funding of BNPL by consumers will see little disruption to banks and card schemes
Consumer use cases
Deferred payment without fees
Increased purchasing power
Merchant use cases
Increased checkout basket size
Improved customer conversion/reduced checkout abandonment
Wider client base
Immediate access to funds
Fraud and default risk
Consolation among BNPL players will accelerate
Network effects mean not all third-party BNPL providers will be viable
Pressure from banks and retailers will limit the expansion of third-party BNPL
Most consolidation in the short term will be M&A-related, but some providers will go bust
Global economic downturn will test the BNPL model
How consumers treat BNPL when their finances are pressured remains to be seen
The possibility of recession has grown in key BNPL markets such as Australia, the US, the UK, and Germany
Fraud detection and deterrence will be a crucial improvement
Traditional providers of retail credit will include features of BNPL
Third-party BNPL startups are sparking innovation from incumbents
BNPL means the death of large amounts of credit net interest margin
Events, services, and healthcare will grow as a BNPL market
The potential market for goods and services to be financed by BNPL is vast
Out-of-pocket healthcare expenses are a big opportunity in all markets
Invoice BNPL will grow as more SMEs adopt the service
Most BNPL is focused on B2C, but B2B purchases are also ripe for more flexible payments
Lending to business has been more robust and should provide ample opportunity for expansion
Mergers and acquisitions
GlobalData’s 2019 Banking and Payments Survey
Appendix: Our thematic research methodology