It is very easy for many who are new to the fintech space to think that financial technology is an exclusive term for payments technology, and while there is some truth to this, it does not tell the entire story about fintech. However, in June, The Fintech Times is looking to indulge this belief as we look to discuss hot topics surrounding both sending and receiving payments, like buy now pay later (BNPL), early paydays and much more.
The final focus of our June paytech month analyses a payment method where only the sky appears to be the limit: BNPL. BNPL’s popularity has skyrocketed since the beginning of the pandemic, and does not appear to be slowing down despite regulatory clarifications and stories of falling into debt. With this in mind, we reached out to the fintech industry to learn about why BNPL is so popular:
Attractive when compared to other forms of payment
Simon Buchwaldt, head of strategy and transformation, product and engineering at Nets, analyses both the positives and negatives of BNPL, “By 2024, BNPL is predicted to account for 14 per cent of all e-commerce payments – double that of 2020. This highlights the significant role BNPL is set to play in the consumer space in the coming years. Yet the concept behind BNPL is not a new one; consumers have been pushing payments via credit cards since the 1950s. So, what has led to this recent and sudden rise in popularity for BNPL?
“The recent rise of open banking and increased openness of the financial system has resulted in drastically eased credit ratings, and the ability for payment service providers to offer highly integrated financing solutions, such as BNPL. By pushing a payment, BNPL offers consumers financial flexibility and management capabilities that are extremely attractive when compared to alternative payment methods. This capability to spread a payment was put to use in the UK during the holiday season of 2021-22 in which consumers spent over £2.3billion through BNPL platforms.
“The attractiveness of BNPL is clear, but this doesn’t mean there are no drawbacks. Due to a relative lack of regulation globally, BNPL is the subject of an ethical debate, from both a consumption and societal perspective. While most consumers can utilise BNPL with ease, some may be at risk of irresponsibly indebting themselves by over-spending. Although this is not necessarily the responsibility of BNPL providers, restrictions are likely to be put in place moving forward to stop this from happening.
“A smooth payment experience can be just as important to a consumer as a desirable product, and BNPL is one payment choice that continues to attract consumers by letting them pay in a more flexible way. While regulation and market conditions will undoubtedly impact its current growth trajectory, its desirability as part of an extensive payment portfolio will likely see more merchants offering this capability to consumers for some time to come.”
Makes large online payment purchases more affordable
Josh Guthrie, UK Country Manager, at Mollie said, “BNPL continues to surge in popularity, with the latest analysis predicting that the payment method is expected to grow by 50.5 per cent on an annual basis to reach $29906.2million in 2022. This has been catalysed by a pandemic-driven shift to e-commerce, and subsequent pandemic-squeezed consumer finances.
“Used by millions of people worldwide, it’s a straightforward concept where users can stagger payments for their purchases. The payment method provides shoppers with flexibility who may not always have the immediate funds available when purchasing necessary items at the point of transaction. Additionally, BNPL is usually interest and fee-free method when repayments are made on time, so managed correctly, there should be no additional costs to the shopper when using BNPL.
“On the business side of BNPL, we’re increasingly seeing more non-pureplay BNPL providers in this space, such as leading retailers and banks introducing their own BNPL products. One example is in December 2021, Amazon joined forces with Barclays to introduce ‘Instalments’, a BNPL service in the UK. PayPal also offers BNPL with its PayPal Credit. Users are offered 0 per cent interest for four months on all purchases of £99.00+, which makes spreading costs easier for larger online purchases. Now more than ever, users are being offered many varieties of BNPL by different sectors and players.”
No background credit check is very appealing
Andy Cease, manager, financial solutions at Entrust said, “BNPL has rapidly gained popularity as an alternative to using a credit or debit card because it gives consumers and merchants the opportunity to establish a payment plan for buying items without the necessity of a background credit check. The concept of BNPL has existed in different forms for a long time but it has recently gained traction, especially among younger consumers, since it is a great way to start learning about credit. BNPL payments usually have little to no interest rates and have been a great option for budget-conscious consumers.”
Cost of BNPL is offset by increased sales
comments, “We can boil the popularity of BNPL down to two key factors, the frictionless customer journey enabled by seamless integration into the checkout journey and the convenience to the consumer when BNPL is used wisely, whether that’s from allowing consumers to delay payment until they’ve tried a product or to spread cost over a more manageable time period.
“From a retailer perspective, whilst there is a cost to offering BNPL it is usually offset by increased sales, through various factors such as higher conversation, trading up, and increased basket sizes.
Inflation secured BNPL dominance
Menda Sims, chief payments officer, at Stax, looks at two viewpoints that impacted its popularity, “The pandemic ignited the need for BNPL, making it take off much more quickly than it likely would have before 2020. Shoppers became much more conscious of when and how much they were spending. Not to mention, as more people were living paycheck to paycheck, it became harder to make costly purchases in one payment. Not wanting to turn to potentially expensive credit card bills, BNPL opened the door for shoppers to more easily purchase items they might not have been able to afford otherwise.
“While the pandemic served as a catalyst for the BNPL boom, inflation only helped the payment option hold its position at the top. As inflation rates rise, people – particularly millennials and Gen Z who are experiencing the highest inflation rates of their adult lives – are becoming more budget-conscious in their everyday spending. A $100 sweater becomes much more affordable when you can pay for it in four installments of $25. All in all, BNPL offers a great way for consumers to afford purchases that they otherwise might not be able to pay for.