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Buy Now, Pay Later: Gaining Scale and the Disrupting Status Quo in Lending

  • ID: 5321669
  • Report
  • May 2021
  • Region: United States
  • 22 Pages
  • Mercator Advisory Group
BNPL: U.S. Volumes Will Surpass $100 Billion Annually by 2024


  • Afterpay
  • Credit Intelligence
  • Household Finance
  • LendingClub
  • Payright
  • Square

This research explains the current market, discusses the strengths, weaknesses, opportunities, and threats to fintech, and explains the business and cashflow of this emerging credit option.

The research compares both consumer and merchant costs in comparison to credit cards.  It dispells the claims that the product is a cheaper option for buyers and sellers.  Research also covers the liberal credit policies used to gain scale, and suggests that fintechs consider tightening credit policies so that losses do not cannabalize profits.

"BNPL is not the “new thing” in lending; it is a modernized version of retail finance. There is certainly a high appeal, but with limited credit policies, consumers need to self-govern their retail purchasing so that they do not overextend themselves financially,” comments Brian Riley, Director, Credit Advisory Service, and the author of the research note.  Riley continues, “Financial institutions and other players in the credit cycle need to pay attention to the way fintechs aggressively book accounts. Fintechs should not compromise their credit standards, but the rapid take-up indicates that credit card issuers must provide access to thin credit files, and watch customers mature.  Fintechs also need to think beyond the single transaction and look at the way banks manage a customer’s lifecycle."

Highlights of the research note include:

  • Forecasted U.S. volumes through 2024, when they will exceed $100 billion
  • Placing the merchant at the center of the relationship, not the consumer
  • What will happen to the BNPL interest-free model when the prime rate rises
  • A discussion on interchange versus merchant discount and why credit cards can be cheaper
  • Market capitalization and why fintechs continue to lose money on BNPL
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  • Afterpay
  • Credit Intelligence
  • Household Finance
  • LendingClub
  • Payright
  • Square

1. Executive Summary
2. BNPL: The Latest “Thing” Is Not So New
  • Pandemic Creates Rapid BNPL Adoption
  • Emphasis on Sales, Not the Consumer’s Ability to Repay
  • BNPL Lending: New Lenders Capitalize on Consumer Material Aspirations with Low-Cost Loans
  • Revenue Dynamics: No Interest BNPL Loans Sound Cheaper, but Financing by Credit Card is Not Much More Expensive
  • Revenue Dynamics: BNPL Drives Retail Sales Volumes, but the Merchant Benefit Is Financially
  • Diminished

3. Current Global Market Dynamics Foster the BNPL Market
  • Market Growth and BNPL Lender Valuation Should Interest Every Banker
  • Consumer Appeal for BNPL is Higher for Younger Age Segments
  • More Important than just BNPL, Financial Institutions Lose Ground to Fintech Lending

4. Decomposing BNPL Lending: a SWOT Analysis
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats

5. Market Changes and What Established Participants Should Consider
  • BNPL-Before the Transaction

6. Advice for Industry Participants
  • Merchants
  • Payment Networks
  • Payment Acquirers and Processors
  • Traditional Credit Providers

7. Summary
8. References
  • Related Research
  • Endnotes
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  • Afterpay
  • American Express
  • Avant
  • Bluevine
  • Capital One
  • Chase
  • Citi
  • Credit Intelligence
  • Discover
  • Dough Limited
  • Fatfish Group
  • FICO
  • General Electric Credit
  • GreenSky
  • Household Finance
  • Humm Group
  • IouPay
  • Kabbage
  • Klarna
  • Laybuy
  • Lending Point
  • LendingClub
  • Margeta
  • Mastercard
  • OnDeck
  • Openpay
  • OpyPay
  • PayPal
  • Payright
  • Petal Card
  • Prosper
  • QVC
  • Sezzle
  • SoFi
  • Splitit
  • Square
  • Synchrony
  • TD Bank
  • TSYS
  • Visa
  • Zebit
  • Zip
  • Zoot Solutions
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