The adaptability and resilience of the Buy Now, Pay Later (BNPL) industry has confounded naysayers on Wall Street, in traditional banks and finance companies, and within the credit card segment.
In 2020, many assumed this still-nascent industry built on short-term, smaller-dollar instalment loans would be unable to survive the economic turmoil of the pandemic. The thinking was that BNPL lenders were too green to predict consumer repayment patterns or that they couldn’t partner with enough retailers at a time the retail industry was chaotic.
They doubted BNPL borrowers would repay their instalment loans in 2021 as consumers dealt with rising rents (up 19.3% in December 2021 YoY) and declining real wages (down 2.4% in 2021). In 2022, the naysayers had a lot to point at - principally, a confluence of geopolitical instability, inflation, supply chain glitches, shortages in global food supplies and rising energy prices. In each year, the BNPL industry has continued to grow and to manage delinquencies and charge-offs.
Buy Now, Pay Later (BNPL) instalment loans were designed as no-interest or low-interest options for consumers to more easily budget for payments meted out over six weeks, with the first payment made at time of purchase and subsequent equal payments made fortnightly.
As consumers have demonstrated an appetite for instalment loans for a wide-range of products (home repairs to groceries), for a broad range of price points ($50 to $40,000) and for a variety of pricing models (no interest or with interest or with fees collected with each payment), BNPL providers had demonstrated a willingness to innovate and to partner with traditional financial services companies to create product line extensions, rewards programs and to extend offers to less credit-worthy consumers.
The ever wider adoption of BNPL has poached billions of dollars from credit card issuers as consumers have chosen to finance purchases with zero/lower interest rate, fixed-term installment loans offered by fintechs rather than risk incurring a revolving balance on their their high-interest credit cards. Despite some repayments being made by credit card, which earns the credit card issuer interchange income, 89% of loan repayments were made on a debit card in 2021, virtually unchanged from each of the previous two years.
The Buy Now, Pay Later: Point of Sale Installment Loans in the U.S. Market and International Perspectives, 3rd Edition market research report presents a deeply detailed analysis of the opportunities and challenges confronting extant and new participants in the BNPL sector. It examines macro and micro drivers of transaction volume, repayment rates and government interventions that may seriously damage this still young category.
Additionally, the report reviews current U.S. consumer borrowing behaviors; strategic positioning initiatives by fintechs (financial technology companies) as well as traditional consumer credit industry participants, including banks, credit card issuers and the credit/debit card networks.
The report also analyzes each of the principal business models in the industry, examining the potential viability of each model as more competitors emerge and bring their own marketing messages, merchant partnerships and revenue models.
The report provides U.S. BNPL market size estimates for 2016 vs. 2021, as well as year-by-year forecasts through 2026. These projections reflect the swift and durable changes in consumer payment preferences during and post-pandemic, the efforts by global governments to regulate the BNPL industry as well as macro-U.S. economic and more granular household spending and demographic detail. While focusing on the BNPL instalment loan industry in the U.S., this report also covers the wider context on BNPL financing in Asian, European, and Latin American countries.
Table of Contents
1 Executive Summary
- Scope & Methodology
- Scope of Report
- Report Methodology
- Executive Summary
- Status of Traditional Consumer Payments
- Table Revolving Credit, Credit Outstanding, 2018 - 2022 (in $billions and % change)
- Status of BNPL in the Payments Landscape
- BNPL Was Made for a Global Pandemic and its Coattails
- Credit Card Balances Fell with Shutdown…and Then Consumers Paid off Their Balances
- Debit Card Use Increased During the Pandemic
- Table U.S. Credit and Debit Card Payment Volume for Mastercard, Visa and American Express, Quarterly, 2021 - 2022 (in $billions)
- Robust 27.6% CAGR Projected for BNPL 2021 - 2026
- Table U.S. BNPL Market: Estimated CAGR, 2016 - 2021 vs. 2021 - 2026 (percent)
- Table U.S. BNPL Market, 2021 - 2026 (in $billions and percent growth)
- Trends and Opportunities
- Banks
- Merchants
- Fintechs
- Robust and Frictionless Digital Strategy Is Essential
- Diverse Strategies Based on Credit Segmentation
2 Market Growth Opportunities
- Strategic Considerations for Market Participants
- Banks
- Merchants
- Fintechs
- Robust and Frictionless Digital Strategy Is Essential
- Consumers Research and Shop Via Mobile, Even if They Buy In-Store
- Table Mobile is the Lead Channel for E-commerce in the U.S., 2019 - 2022 (percent)
- Emphasis on Responsible Lending
- Diverse Strategies Based on Credit Segmentation
- Accelerating BNPL Growth
- The Morphing of Installment Loans
3 U.S. Industry Context
- The Consumer Credit Market Before BNPL Installment Finance
- Finance Companies and Credit Card/Store Card Lines of Credit
- The Opportunity That Created BNPL Finance
- BNPL Loans Turned Small Dollar Consumer Finance on Its Head
- Consumers' Receptive to New Ways to Buying and Paying for Purchases
- The Backstory of BNPL
- E-Commerce Growth Fueled Merchant Need for Differentiation and Competitive Advantages
- BNPL Financing Upstreamed in E-Commerce to Larger Market
- Table Merchant Categories of BNPL Spend, 2020 - 2022 ($ in billion and percent total)
4 BNPL Financing in the U.S.
- Forecasting Industry Growth
- 2022: A Year of Industry Partnerships and Product Line Extensions.
- Robust 7.8% CAGR Projected for 2021-2025
- Table U.S. Point of Sales Installment Financing Market: Estimated, 2016 - 2020 vs. 2021 - 2025 (% CAGR)
- Table U.S. BNPL Installment Financing Market, 2021 - 2025 (in $billions GMV and percent growth)
- Robust 27.6% CAGR Projected for BNPL 2021-2026
- Table U.S. BNPL Market: Estimated 2016 - 2021 vs. 2021 - 2026 (% CAGR)
- Table U.S. BNPL Market, 2021 - 2026 (in $billions and percent growth)
- Summary of Rationale for Longer-Term 2020-2025 Projections
- Table E-commerce as a Percentage of Retail Sales, 2019-2022 (in $millions)
- Key Growth Drivers
- New Market Niches, New Player Strategies All Contribute to Growth
- Consumers Receptive to BNPL Loans
- Fintechs Leverage Consumer Payments to Build Customer Relationships
- New Strategies from Traditional Financial Institutions
- Key Competitive Challenges
- Challenges Dictated by Player's Role in Payment Transaction
- Payment Friction
- Regulatory Oversight: BNPL Providers' Business Models Invite Scrutiny
- Competition Pressures Prices
- Uses of BNPL Installment Moved from Smaller Ticket to Larger Ticket Items
- Consumers Avoid New Credit Card Accounts
5 The U.S. BNPL Customer
- Convenience Drives Use of BNPL
- Table Top Reasons for Using BNPL Loans, 2021 (percent)
- BNPL Use by Level of Education, Income and Race/Ethnicity
- Table Family Income, Education and Race/Ethnicity of BNPL Users and Users Paying Late,
- Younger Adults are Challenged to Manage and Pay Bills
- Longitudinal Survey Results
- Table Age of BNPL Users, 2020 - 2022 (percent)
- Overall Usage and Key Cohorts
- PayPal Credit Is Most Used BNPL Loan Provider
- Recentness and Frequency of BNPL Loan Usage
- BNPL Loans by Amount Borrowed
- Platforms for Use of BNPL Services
- Characteristics of BNPL Loan Usage
- Table Customer Service Patterns for BNPL, August-September 2021 (percent of BNPL customers)
- Table Customer Service Patterns for BNPL, August-September 2021 (percent of BNPL customers)
6 The U.S. BNPL Financing Merchant
- Significant Benefits to Merchants
- Consumers Demanding Product
- Airlines
- Fintechs
- Malls - Ideal Targets for BNPL Providers
7 U.S. Dynamics: Traditional Players
- U.S. Banks and Card Issuers Join BNPL Finance Market
- U.S. Banks
- Bank: Citizens Financial
- Consortium: GreenSky Financial
- Card Issuer: Citibank
- Bank: Goldman Sachs
- Card Issuer: JPMorgan Chase
- Finance Company: Synchrony Financial
- Card Networks Enter BNPL Finance Market
- Industry Context
- Visa
- American Express
- Mastercard
8 U.S. Dynamics: Fintechs
- Fintechs Drive Innovation in U.S. BNPL Finance
- Fintechs Targeting Consumers With/Without Credit
- Table Fintech Volumes, Lead Products, and Repayment Methods 2022 (volumes in $billions)
- Klarna
- Largest BNPL Provider with Valuation of $45.6 Billion
- Klarna's U.S. Focus
- Klarna Vibe Loyalty Program
- Klarna Offers Consumers Three BNPL Financing Products
- PayPal Credit
- PayPal BNPL Offers Show Strong Growth
- Marketing to Both Merchants and PayPal Users
- Affirm
- Since 2016, Affirm Has Processed $30 Billion for Merchants
- Table Affirm's Key Metrics, YoY, 2021-2022
- How Affirm Makes Money
- Walmart Offers Affirm BNPL Loans at its 4,000 U.S. Stores
- Affirm, Shopify and Shop Pay
- Amazon, Peloton and Affirm
- Affirm at a Strategic Crossroads on Achieving Profitability
- Apple Pay
- Apple Pay Later
- Afterpay
- Afterpay Offers a Single, No-Interest Product
- Virtual Card Makes Afterpay an In-Store Payment Option of Largest Retailers
- Table What Feeling is Associated with the Ability to Make Payments Over Time? Survey of Italian Online Shoppers, March 2022
- Impressive Growth Metrics
- Table Afterpay, Global Growth, 2019-2021 (US$)
- Acquisition by Square for $29 Billion
- Amazon
- Amazon's BNPL Options
- Sezzle
- Sezzle Built Key Partnerships in 2020 and 2021
- Active Customer and Merchant Totals Continue to Climb, Merchant Sales Declined
- Profitability of Growth is Increasing
- Sezzle's 2022 Product Introductions
- Building a Stable of Partners to Finance Sezzle's Large Ticket Purchases
- Zip
- Table Key Metrics for Zip Co. 2020 - 2022
9 International Market Dynamics
- Global Snapshot
- Overview
- European Union
- Latin America
- China
- Western Europe
- Consumer Credit and Payment Preferences
- BNPL is Growing Twice as Fast as Credit Cards
- BNPL Growth Is Fueled by Consumers' Desire for Payment Choices
- Having Payment Options Informs U.K. Consumers' Choice of Merchants
- Europeans Use Wide Range of E-Commerce Payment Options
- Finally, Germany Moving to Credit Cards and BNPL Finance
- Benefits from E-Commerce and Highly Developed BNPL Tech
- Brazil
- Largest Latin American Marketplace
- Robust Installment Loan Ecosystem
- Consumer Financial Services Growing
- More Internet and More Smartphones
- Previously, Consumers Left Stack of Postdated Checks as Installments
- Brazilian Retailers Advertised Installment Price, Not Full Retail Price
- Instalments Used in 80% of Brazilian E-Commerce Purchases
- In Other Markets, Fintechs Collect Shopper Payments
- Biggest E-commerce Categories Are Electronics and Travel
- Daunting Import Tariffs Act to Depress E-Commerce Volumes
- Mexico
- Mexico's E-Commerce Value More than Doubled Between 2014 and 2019
- Debit Cards Are Not Authorized for Digital Commerce
- Country's Largest C-Store Lets Consumers Buy Online and Pay Cash In-Store
- Market Solution Still Needed for Paying in Cash Installment for E-Commerce
- China
- China's High Level of M-commerce
- Tighter Regulations Tamper Chinese BNPL
- China, and the Countries It Invests In, Are Most Advanced BNPL Finance Markets
- Tencent
- Alibaba
- Leveraging Chinese Tourists to Enter New Markets
- Trade Wars Are Thwarting Plans
Companies Mentioned
- Affirm
- Afterpay
- Amazon
- American Express
- Apple Pay
- Citibank
- Citizens Financial
- Goldman Sachs
- GreenSky Financial
- JPMorgan Chase
- Klarna
- PayPal
- Peloton
- Sezzle
- Square
- Synchrony Financial
- Visa
- Walmart
- Zip Co.
