Buy Now Pay Later (BNPL)

The Buy Now Pay Later (BNPL) industry is experiencing high growth (20.7% CAGR) supported by the growing trend of millennials (~18 - 35 years) to embrace service-based models, rise of digital payments and e-commerce, and the adoption in sectors leveraging high-value items such as consumer sectors like fashion, electronics, and healthcare.

The revenue model of BNPL services involves

• Merchant Fees: charging retailers a percentage of each transaction for offering financing option, managing credit risk and processing payments.

• Marketplace: charging retailers for using the BNPL platform to sell their products.

• Late fees: charging consumers who miss a payment.

• Interest charges: charging consumers interest on extended payment terms.

• Other Financials: selling additional financial services such as credit cards, personal loans, savings account and insurance to users.

The BNPL ecosystem is beneficial to both consumers and merchants. Even Financial institutes benefit [1].

BNPL Ecosystem [2]

• BNPL is popular with consumers earning ~$50k annually. This financing option is appealing because it allows purchases that may not fit immediately into budgets, providing an alternative to traditional credit due to its ease of use and avoidance of high credit card interest rates.

• BNPL is popular with merchant because it boosts customer traffic, increasing revenue by making their offerings more attractive and affordable over time.

• BNPL is popular with financial institutions because it enables clients to borrow more, thereby increasing their lending capabilities and potentially boosting profits.

A key challenge in the BNPL industry is the risk of debt accumulation as consumer demand grows. As BNPL services make it easier to spend, there's a heightened risk of consumers accruing substantial debts. To mitigate this, BNPL providers must ensure they practice responsible lending by enforcing stringent credit checks and launching educational programs to help consumers make well-informed financial decisions. BNPL services rely heavily on technology and cybersecurity due to their handling of sensitive customer information, making them vulnerable to fraud and subject to regulatory scrutiny regarding compliance with financial regulations and data privacy.

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[1] Financial institutions are Banks and Payment System Operators such as Visa, Mastercard, Apple Pay, Stripe

[2] Source: Latentview