#BNPL / Special Report: Breaking down Buy Now, Pay Later

There were a number of fintech hits and misses in 2020, but there’s no question that “Buy Now, Pay Later” (BNPL) was one of the biggest hits – by far… In a nutshell, it’s a way of allowing consumers to purchase something (whether it’s a good or service) and pay for it over time…

A recent survey by Bank of America found that the market for BNPL apps could “grow 10-15x by 2025 to eventually process $650bn-$1tn in transactions”…

Key players
… In its recent S-1 filing, Affirm said that number was up to “over 6.2 million consumers” as of Sept. 30, 2020. It also has over 6,500 merchant partners…

In Australia, Afterpay – with a staggering $33.2 billion market cap – is the dominant player. In October, the company made its in-store solution available in the U.S…

Another “Buy Now, Pay Later” giant is Swedish unicorn Klarna, which is also growing rapidly in the U.S. – recently expanding its offering and reaching over 11 million customers in the country. Over 200,000 merchants, including retailers such as H&M, IKEA, Expedia Group, Samsung, Abercrombie & Fitch, Nike and AliExpress offer Klarna’s plans online and in-store…

Other BNPL players include PayPal (although not exclusively a BNPL play, is very active in the space with its own offering) and Splitit, which lets shoppers use their existing credit card to pay in small, monthly installments.

[Kinderhook Partners:] “This wasn’t even a business five years ago. And it went from zero to $20 billion in valuation… Buy now pay later has become a massive sector.” … The BNPL model works… in part because there’s “a whole wave of millennials who want to be off credit card addiction.” … “They use it as a budgeting means.”

For retailers, it’s an easy way to grow their customer base…

Risks
Despite all the growth in the BNPL space, there remains some concerns around it – especially on the topic of responsible lending… “It’s been argued that users of the scheme don’t fully understand the financial contract they’re entering into.” …

Meanwhile, BNPL promises merchants a boost in conversion rates, higher average order values, and increased repeat purchases, notes a recent Forrester report.

But there are also questions about whether the BNPL model is really good for merchants.

[Brian Barth, CEO & founder of Uplift: – a BNPL company in the travel space:] … wrote that Affirm’s business model “is pulling customer loyalty away from enterprise merchants … While BNPL is a great model for the consumer and becoming the new normal, not all BNPLs are acting in the merchant’s best interest. When it comes to Affirm specifically, they are redirecting customers to their platform and taking the customers’ loyalty share away from the merchant. As a result, the merchants are losing their high-value loyal customers without realizing it.”

Looking ahead
… And as we look to the future, we see more specialized players continuing to gain traction.

For example, Los Angeles-based BNPL company, Sunbit, is focused on helping thousands of local merchants like auto shops, eye doctors, dentists and vets, give customers an alternative way to pay for their services… Sunbit says its success is built on “specific deployment of machine learning, technology services, and old-fashioned customer service.”

Another fintech that is focused on a niche segment of the BNPL market is payments startup QuickFee. The company recently launched what it described as the first-ever BNPL solution for professional services called QuickFee Installments. The offering is designed for services companies such as accounting and law firms and allows a firm’s clients to pay invoices in four interest-free installments.

https://finledger.com/2020/12/30/special-report-the-buy-now-pay-later-revolution-is-here/