#BNPL / The Winners And Losers In The $24 Billion Buy Now, Pay Later Battle

Cornerstone estimates that Americans made $20 billion worth of purchases using BNPL programs in 2019—in line with an estimate from consulting firm Oliver Wyman—and will spend $24 billion on products and services using a BNPL service in 2020.

Consumer advocates and other critics believe Buy Now Pay Later programs encourage consumers to take on debt they might not be able to afford… That risk may be unwarranted… Cornerstone’s research found that 80% of BNPL users say they always pay their bills in full and on-time and make their loan payments most or all of the time.

Who’s making BNPL purchases?

– High-income consumers. Seven in 10 BNPL users earn more than $75,000 a year. They’re highly educated as well—three-quarters have a Bachelors degree or higher.

– Credit cardholders. The notion that consumers are using BNPL programs because they can’t get (or don’t have) a credit card is nonsense: 97% of them have at least one credit card. This means that BNPL users have other mechanisms to get themselves into debt.

– Millennials… Overall, Millennials account for half of all consumers who have used the service in the past two years.

Why Do Consumers Buy Now and Pay Later?

… what’s the real reason driving a small percentage of consumers to run up so many BNPL purchases?

For some, it’s certainly a case of hitting the credit limit on their credit cards. But that doesn’t apply to all BNPL users, and ignores another important fact: Four in 10 BNPL users said they used the service to purchase products costing less than $100.

Frequent users use BNPL for psychological money management and budgeting reasons. They have every intention to pay off the purchases on time, but want to cap their monthly expenditures.

Buy Now, Pay Later Winners and Losers

Too early to make a call, but a couple of thoughts here:

1) It’s not a winner-take-all game. No one BNPL provider will emerge as having a monopolistic market share. Consumers’ choice of BNPL provider is dictated by which provider the merchant they’re buying from chooses to work with.

2) BNPL providers will need to sharpen their sales attribution stories. BNPL providers like to claim that they help merchants make sales that wouldn’t have been made otherwise. Sound familiar? Credit card providers made the same claims when credit cards were launched.

3) BNPL providers will specialize. As a result of the need to prove their attribution claims, we’ll see specialization by product category on the part of BNPL providers. That is, two or three will get real good at pricing and selling BNPL offers for electronic products, another set of providers will focus on clothing and fashion.

Who are the Losers in BNPL?

That one’s easy: The banks and payment networks.

Merchants have two things in common: 1) They’ll do anything to make a sale, and 2) They hate (with a passion) interchange.

… over time, BNPL providers will have amassed a lot of data about the segment of consumers who use BNPL services. They will become better partners to merchants than the banks and payment networks are.

The end result: More reduction in interchange fees for banks and payment networks.