Buy Now, Pay Later (BNPL): Market Analysis, Overview, and Leading Companies by Use-Case

BNPL is a credit option offered at the point of sale or online checkout, allowing consumers to buy a product straight away and pay for it later through installments. There is a significant global opportunity within payments: the global opportunity is estimated at $10T by 2024 and BNPL has less than 2% penetration today.

With a forecasted 4-year CAGR of 27% I expect to see more BNPL vendors building, growing, and scaling on cloud infrastructure, like AWS.

Executive Summary: The BNPL Market

• By 2025 BNPL leaders (Afterpay, Affirm, Klarna, PayPal) will process $650B-$1T in transactions.
• BNPL usage growth was largest in the 18 to 24 (62% growth) and 55+ (98% growth) age groups over the past FY.
• 36% of BNPL users use BNPL once a month or more, and 37% of U.S. shoppers have tried an installment payment service according to PYMTS data.
• Key BNPL growth drivers include merchants shifting towards omnichannel and using BNPL to help increase conversion, basket sizes, and customer acquisition; consumer preferences shifting away from traditional credit; and an expanding set of players for vertical specific use-cases (retail, travel, healthcare, etc.).
• BNPL has diverted $8-$10B in annual revenues away from banks, according to McKinsey’s Consumer Lending Pools data.
• Machine learning is reshaping the accuracy and speed of underwriting and modeling consumer credit risk.

How BNPL Works

• There are three parties in a BNPL transaction: a consumer (the borrower), a merchant, and a BNPL vendor.
• BNPL provider performs a soft credit check on the consumer at the point of purchase.
• When this step is completed, the customer pays the provider back in an agreed-upon series of installments for the item purchased.
• Some BNPL services offer a fixed number of installments, others allow the customer to choose the installment plan they prefer.
• Most plans run in the range of 3 to 12 monthly payments.
• On the other end of the transaction, merchants typically pay the BNPL provider between 2-8% of the purchase amount, and in some cases a small per-transaction fee.

Overview of the BNPL Flywheel

• BNPL attracts consumers as it makes it easier (i.e. credit, liquidity) to purchase items.
• More users mean more leads to merchants.
• With more merchants accepting BNPL, there is more quantity and variety of items for consumers to access.
• This enables BNPL vendors to bring consumers and merchants together, creating additional value at the point of purchase. This attracts more consumers.

BNPL Applications: Online and POS Systems

• There are two BNPL use-cases: online and point of sale (POS) systems.
• Online: BNPL options can be added to the payment methods of your online store checkout. Online customers can then pick it as a payment method, choose a repayment plan and complete the transaction.
• POS: Retail/brick and mortar shops can use a POS system with a BNPL option added to payment methods. The merchant can then offer this at the in-store checkout, typically through a QR code or payment link.
• Emerging BNPL use-cases: subprime borrowers (Kafene), medical visits (Walnut), retail (Zest), & travel (Uplift).

BNPL Example Firms and How They Operate

BNPL Companies & Use-Cases