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). |
Afterpay | Consumer shopping |
Klarna | Consumer shopping |
Paypal Pay in 4 | Consumer shopping |
Perpay | Consumer shopping |
Sezzle | Consumer shopping |
Splitit | Consumer shopping |
Sunbit | Consumer shopping |
Twisto | Consumer shopping |
Flexiti Financial | Consumer shopping (acquired by US Short-Term Lending firm, Curo) |
Zip Pay | Consumer shopping |
Katapult | Consumer shopping |
Laybuy | Consumer shopping |
Maroo | Weddings |
QuadPay | Retail, Travel |
PayBright | Consumer Shopping; Owned by Affirm; BNPL leader in Canada |
Fly Now Pay Later | Travel |
Uplift | Travel |
Willow | Flexible and responsible payment solutions for Main Street |
Hello Walnut | Healthcare |
Prima Health Credit | Healthcare |
ZestMoney | Instant financing at checkout |
Payr | Invoices |
Amount | A white-label buy-now-pay-later service for banks |
Kafene | BNPL for the subprime consumer |
Hokodo | Offer trade credit to your customers |
Company | International Market |
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 |