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Buy Now Pay Later (BNPL) financing services’ global growth is strong.
The growth of the ecommerce market, accelerated by the Covid-19 pandemic, has heightened competition among online merchants and financial services companies. BNPL solutions and products, which enable end-customers to make purchases via interest free short term installments are rising in popularity and the BNPL industry is expected to reach 680$ billion in transaction volume worldwide in 2025.
Global Data’s latest report, showed that the global transaction value for BNPL payments has quadrupled in just two years from $33 billion in 2019 to $120 billion in 2021. Industry analysts believe that despite the rapid growth in BNPL in the last two years, there is still a lot of room for the sector to grow further and acquire more market share, since BNPL makes up 2.3% of the global ecommerce market.
BNPL products and services have proven attractive to consumers due to their flexibility and low cost.
Recent survey among consumers shows that the main factors attracting people to opt in for BNPL payment options are the affordability, the flexibility, easy approval process and the lower interest rates, when compared to traditional consumer lending options such as loans and credit cards. According to a study by Forbes, Millennials and Generation Z are the demographics that are engaging the most with BNPL payments, causing them to shift away from traditional credit cards. Earlier this year, research in the UK found that 47%* of UK consumers aged between 18–34 do not hold a credit card.
BNPL can provide ecommerce retail businesses multiple benefits, including new customers, increased sales, lower abandonment rate, and increased repeat purchases.
When an ecommerce merchant incorporates a BNPL payment option through a dedicated provider on his website or platform, that includes additional features like free returns and support staff, which not only improves the customer experience, but lowers the upfront entry cost for consumers and gives them flexibility when making purchases.
The availability of more payment options increase the likelihood of a purchase. In the case of BNPL, when the customers are given the opportunity of splitting payments as per their convenience, they tend to choose and shop for more than one product, or pricier one. The cumulative effect leads to higher average order value, increased repeat purchases, and lower cart abandonment rate.
International competition has intensified by attracting strong players from various industries.
Initially dominated by fintech companies such as Klarna in Europe and Affirm in the US, the growth of the BNPL market and demand of consumers for alternative payment options, have attracted strong competition in the sector from other fintech startups, traditional financial institutions and even tech companies such as Apple. Recently, the American tech giant announced the launch of new features for the wallet app such as a buy now, pay later service at its annual developers conference.