The Competitive Landscape Of The 'Buy Now Pay Later' (BNPL) Industry

BNPL (Buy Now Pay Later) is a short-term financing both in store and online, allowing individuals to split their purchase into instalments and pay them later on. According to GlobalData, the industry has a global transaction value at USD 120 billion, and is forecasted to reach USD 576 billion in 2026.

Source: Statista

BNPL is becoming a huge trend in the financial services industry, with companies extending features in the payment options, increasing the tension among brands. Some of the these include:

• July, 2021: Apple launch its ‘pay later’ feature, in partnership with Goldman Sachs to loan the instalments

• Aug, 2021: Affirm partnered with Amazon in the US, whereby after the announcement soared Affirm’s share up to 46.67%

• Aug, 2021: Square acquired Afterpay, the transaction was valued at USD 29 billion

Key players in the BNPL industry, in chronological order:

1. Klarna

2. Paypal

3. Affirm

Company	Company Profile	Number of Active Users	Number of Active Merchants	Audience Demographic / Main User Group
Klarna	Founded in 2005 in Stockholm, Sweden	150,000,000	450,000+	70% are Gen Z and Milllenials
Afterpay	​Founded in 2014 in Sydney, Australia	20,000,000	144,000	~ 70% are Gen Z and Millenials
Affirm	Founded in 2012 in San Francisco, US	12,700,000	235,000	~ 50% are Gen Z and Millenials

Why do consumers shift from traditional credit/debit cards to the BNPL system?

• Due to the pandemic in 2019, lockdowns are implemented, people need to stay indoor, increasing online shopping demand

• BNPL lets customers use the service free of charge, or without interest, under certain conditions (If they fail to pay back on time, additional charges are implemented). The process happen through just one click, which helps them avoid the hassle they will get at the bank

• An appealing option for customers, as the service is offered on different product ranges (luxury, necessities)

• Loyalty programs from the large BNPL brands give consumers incentives to keep using their service. (did you know, 69% of US consumers say loyalty programs influence their purchase decisions)

  • Klarna acquired Stocard to launch its digital loyalty card directly on their app, avoiding the hassle of plastic cards. You earn points with every purchase and collect your benefits and rewards at the merchants
    

Who uses BNPL?

According to Bain&Company, there were 10.1 million BNPL users in the UK. The most popular age range to use this service are Gen Z and Millenials, but also is quite common among higher age range as well.

It is no surprise these BNPL companies are familiar with Gen Z users, since they have a strong social media presence which engage users with their services through targeted ads. This suggests that they prefer digital services over traditional credit cards.

Both methods differ and has its own risks in a lot of ways. BNPL gives an exact time frame to when they need to submit their next payment for individual purchases, as of with credit cards, it calculates monthly payment rather than individually. However, it is worth noting that it can be easy to accumulate debt over time with BNPL if not used carefully. The purpose of BNPL is to engage users to buy more and borrow more, which seems really attractive at the moment of purchase, but can lead to borrowing multiple payments at once.