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What Next for ‘Buy Now, Pay Later’?

When the world went into a global lockdown back in 2020, most people turned to online shopping, which then accelerated eCommerce adoption and now makes up £6.4bn or 5% of all eCommerce transitions in the UK - an increase of at least 60% from the previous year. With that being said, in this blog we discuss what's next for the BNPL industry, with mentions of some of the top BNPL FinTech companies.

Buy Now Pay Later (BNPL) agreements are a way for you to buy items on credit and pay for them at a later date, or spread the cost through out the months. These payments could be through regular interest-free instalments or after an interest-free period.

BNPL can be a useful payment method, for example, letting people take up sale offers when you don't have any cash available to pay there and then. However, if you don't make your payments on time, you may face a penalty fee or other charges - and any rights of protections you have will also depend on your chosen method of payment.

What was once a niche form of credit has now grown massively during the pandemic and has been dubbed by some people as "the future of finance for Millennials" - as the BNPL adoption is being driven by Millennials and Gen Z, who make up a staggering 75% of BNPL customers. What's contributing to the ever-growing popularity is the need for flexible payment options and an aversion to credit cards.

Buy Now Pay Later funding is in the billions; Klarna's recent investments, led by SoftBank's Vision Fund 2, has placed the Swedish startup's status as Europe's top FinTech unicorn. Shares of Affirm soared 98% in its Nasdaq IPO last year and Square announced that it would be spending $29bn to acquire Afterpay (ClearPay UK).

With more than 170 startups competing in the BNPL space, the market is becoming crowded - so the real question is: what's next?

What's Next For BNPL?

Regulations & Competition.

Already, regulators have allowed freedom for the Buy Now Pay Later companies, especially when you compare it to credit cards. As the BNPL market continues to grow, this will likely change as there are some rising concerns that some users may fall into a spiral of debt.

Almost half of users opt for BNPL payment methods for budgeting issues. According to recent research, nearly 40% of people who use Buy Now Pay Later services say that they've fallen behind on payments at least once. No matter the scale of the problem, the public opinion is already putting pressure on lawmakers - which is going to result in more control being put onto BNPL products.

There are still some strong and well established companies in the market. The low barriers to entry mean that major providers like Amazon, can offer their own BNPL options at the checkout. Banks are also starting to include BNPL within their portfolios - JP Morgan Chase, the American multinational investment bank, has the option to pay for purchases across several months at 0% interest and low monthly fees. Whilst Goldman Sachs have announced their acquisition of GreenSky - a FinTech platform for home improvement loans.

Strategic Partnerships & Consolidation.

Theres an abundance of BNPL FinTechs emerging, which only means one thing - some will fall. Most Buy Now Pay Later providers typically rely on income from transaction fees that they charge the retailers, who have an incentive to agree to this as it usually leads to higher average order value and better conversion rates.

According to research, 42% of Gen Z and 69% of Millennials are more likely to shop with a retailer if they offer a BNPL payment method and almost half of them have stated that they wouldn't buy from a retailer if this payment option wasn't available. This means that the BNPL FinTechs need to increase their gross merchandise value and also achieve economies of scale in order to survive the market - with enough cash to cover any losses that they may experience over time.

Market consolidation and strategic partnerships with high-value retailers are very predictable - like Amazon and Affirm, Klarna and Global-e. Both deals will allow BNPL companies to integrate products at checkout and also expand their product distribution by gaining access to thousands of different sellers. In return, these retailers will get a new method to improve their sales, meaning that whoever secures the largest number of quality merchants first, will be able to extend their advantage over others.

Currently, PayPal is leading the way with its own in-house BNPL solution and 80 of the top 100 retailers are already offering PayPal as a payment option to their customers, with nearly 70% of online shoppers already having their own PayPal account.

Building Consumer Loyalty.

Once BNPL starts to be considered as a commodity, retailers are soon going to start offering more than one type of Buy Now Pay Later solution - meaning that FinTechs will need to expand their product offerings to gain not only the merchants loyalty, but also their consumers. Strong loyalty will be able to deliver many more opportunities, especially to those companies that have developed a strong portfolio of financial and insurance products.

This will lead to more value-added services as well as an expanding amount of personal finance services. The BNPL market will start to add discounts, shopping recommendations, virtual cards, insurance and daily banking products. Klarna already offers price alerts for merchandise that their clients hope to get at a better price, whilst Afterpay have already launched in-app ads.

A major factor of retaining and developing your customer loyalty, is continuously developing the market for the consumers. With the BNPL market taking off massively during the pandemic, some major UK retailers have started to offer Klarna in their physical stores - with the likes of New Look, Schuh and iSmash all utilising BNPL - even H&M offers Klarna in store, through their own app.

The future of BNPL FinTechs seem to be developing continuously, although the area to profitability and significant market share in the lending services segment may struggle, it's definitely going to continue paving the way for future payment methods over the credit card.

With that being said, here at Talented Recruitment Group, we're looking forward to seeing how the Buy Now Pay Later market it going to continue to develop and what all of those companies are going to do in order to retain their consumers loyalty and deal with their competition and the possible introduction of new regulations.

Let us know what you think about the BNPL market...

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