The BNPL Playbook: Are We on the Verge of a Payments Revolution?

While the option to purchase on credit has been around since antiquity, Buy Now, Pay Later (BNPL) is a whole different ball game altogether.

Having made quite a grand entry into the payments and retail space, BNPL is a growing global trend that is shaking up the financial services world.

BNPL, also known as point-of-sale loan, has exploded in popularity and has been quick to make its way up the charts to enter the $100 Billion Industry.

There has been much talk about this new payment trend and all for a good reason! What we’ve witnessed in the last few months is nothing short of exponential growth, to the point where Gen-Zs using BNPL have grown by sixfold to 36% in 2021 from just 6% in 2019.

What does the future hold for BNPL?

No doubt customers love the liberty to split their purchase transactions into smaller installments at the time of checkout.

Adding to that — the Big Techs are lining up to foray into the financial services space, especially with the advances made by payment mechanisms like buy now, pay later and sachet-sized loans.

As we’re seeing a steady decline in the usage of traditional payment methods — industry experts are of the opinion that BNPL is gaining ground and is poised for massive growth in the coming years.

Let’s take a minute here to understand the velocity of the BNPL adoption — by 2024, BNPL is expected to double its share and account for nearly 13.6% of the E-commerce spend in Europe.

According to ‘The Global Payments Report 2021’ by Worldpay from FIS, BNPL is edging forward as the preferred payment option for online shopping.

Source: Worldpay From FIS

BNPL has a range of benefits to offer customers and merchants alike. Much-demanded flexibility and long-term payment options are some of the many advantages that BNPL offers to shoppers. On the other hand, with customers making bigger ticket purchases using BNPL payment options, merchants enjoy an increase in their average order values.

Are banks looking for a slice of the action?

Absolutely! Mainstream banks are looking to jump on the buy now, pay later trend in an effort to give customers what they want — greater flexibility!

Typically, banks are adopting the BNPL model to attract the younger generation who have been the biggest takers of this deferred payments financing solution.

To roll out BNPL models effectively, banks can cash in on their advantages, which are — high levels of customer trust and a treasure trove of data.

What’s the key driver of the BNPL boom? Customer Experience.

Seamless customer experience is the ask, and traditionally product-focused banking leaders are not shying away from admitting that experience has taken over as the key differentiator in banking.

According to Temeos’ global study with the Economist Intelligence Unit (EIU), 81% of bankers claim that banks will take the experience-driven route to out beat their competitors.

Alexa Guenoun, Chief Operating Officer at Temenos adds on by saying that, “Buy now, pay later’s stellar growth shows the importance of customer experience in today’s banking battleground”.

Does the future look bleak for credit cards?

Quite honestly, I believe that even as BNPL adoption accelerates, credit card usage will remain strong.

For consumers that are living paycheck to paycheck, BNPL offers them much-needed convenience and longer payment terms. While BNPL is on the rise among both financially stable and financially insecure customers, this is not the end of the road for traditional lines of credit such as credit cards.

Liz Pagel, Senior Vice President of Consumer Lending at TransUnion confirms that consumers who opt for point-of-sale financing are not doing so at the expense of traditional credit. She says, “We saw consumers who have applied for POS financing building balances on the bank and retail cards, and applying for new credit at higher levels than the general credit population”.

Act now, or pay later

Here’s the deal – buy now, pay later has been one of the most explosive trends to hit the payments space in recent times. BNPL continues to gain traction and is showing breathtaking levels of growth — we’re talking trillions of US dollars here. Going by the reports, globally the BNPL market is predicted to reach $3.98 trillion by 2030.

One thing is certain — we’re in the middle of a revolution brought on by this new payment tool.

BNPL providers like Afterpay, Affirm, and Klarna has been making the headlines in their attempt to vie for new customers. While these players have been quick to establish category leadership, there still remain a lot of opportunities to be explored beyond the retail space.

It’s interesting to see the business models and partnerships that will come out of the huge opportunity that BNPL offers. To my friends in the industry, I would say, instead of waiting and watching — it’s time to make your move and ride the crest of the BNPL wave.

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