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 Company||Interest rate||Late fees||Market Cap|
|Affirm||Up to 30%||None||17B|
|Afterpay||0%||Up to $17 per late payment, capped at up to 25% of your initial order value.||29B|
|Klarna||0%||Up to $7 (per payment)||45B|
|Sezzle||0%||$10 per payment||700M|
|Splitit||0%||None (though your credit card will charge late fees)||200M|
|Zip||0%||Up to $21 per purchase||4B|
BNPL Companies & Use-Cases
|Company||Use-Case & Notes|
|Affirm||Consumer shopping (i.e. Peleton bikes, high-end bladeless fans, etc).|
|Paypal Pay in 4||Consumer shopping|
|Flexiti Financial||Consumer shopping (acquired by US Short-Term Lending firm, Curo)|
|Zip Pay||Consumer shopping|
|PayBright||Consumer Shopping; Owned by Affirm; BNPL leader in Canada|
|Fly Now Pay Later||Travel|
|Willow||Flexible and responsible payment solutions for Main Street|
|Prima Health Credit||Healthcare|
|ZestMoney||Instant financing at checkout|
|Amount||A white-label buy-now-pay-later service for banks|
|Kafene||BNPL for the subprime consumer|
|Hokodo||Offer trade credit to your customers|
|Jungle||A Philippines based consumer shopping focused solution; offered via mobile application|
|Graviti||A Mexican buy-now-pay-later startup for appliances|
|Deferit||Aussie firm to split utility, telco, car registration or childcare bills into 4 repayments|
|Aplazo||A Mexican omnichannel buy-now-pay-later provider|
|Addi||Colombian and Brazilian buy-now-pay-later startup|
|Kredivo||Indonesian buy-now-pay-later lender|
|Tabby||UAE buy-now-pay-later firm focused on consumer shopping|
|Behalf||Behalf, an Israeli buy-now-pay-later startup|