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August 23, 2021

Buy Now, Pay Later: where to next?

By Mohamed Dabo

Buy Now Pay Later (BNPL) has taken the UK and a number of other markets by storm over the past couple of years and the pandemic-related shift to online shopping and payment has super-charged this already in progress trend, writes Pete Wickes 

The growth of BNPL won’t stop with the reopening of shops. In April, the Global Payments Report from Worldpay found that Buy Now, Pay Later were the fastest growing online payment method in the UK for the second year in a row. Firms such as Swedish based Klarna and Australia based Clearpay have expanded globally with Clearpay targeting Europe and Klarna expanding in the US in the last year.BNPL schemes are predicted to account for 10% of UK eCommerce spend by 2024. BNPL transactions in the UK will grow 29% year-on-year with this payment method being on course to double market share to 10% by 2024. The analysis shows that overall BNPL spending in the UK will rise from £9.6bn in 2020 to £26.4bn in 2024

Financial markets have an opportunity to challenge the existing credit models and change the way consumers think about credit, making for a more inclusive financial sector.

BNPL is Changing Traditional Banks and Retailers 

The success of BNPL is forcing banks and retailers to make changes to their credit offerings and banks will increasingly need to create relationships with merchants is they want to maintain a competitive edge in the ever-changing market.Banks are responding by removing fees on low balance cards. Retailer John Lewis launched a regulated online payment method in partnership with French bank BNP Paribas that will let customers borrow up to £35,000 to fund home improvements and Next offers NextPay, which is its own version of a buy now, pay later scheme.

Banks are also pivoting their existing loan products to cope with the rise in consumer demand for BNPL. This rise in demand has been driven by younger generations, with a study from showing that 87% of consumers aged 22 to 44 are interested in BPNL; furthermore, 40% of millennials and 57% of Gen Xers have already used one.

Banks are now targeting young consumers and aiming to use this functionality to capture loyalty and recognition. HSBC and ING have both recently partnered with Divido to bring custom-branded BNPL options on their online checkouts. But it is not only banks that are adapting. Klarna, which started off as BNPL provider, is now pivoting to offer other banking products which they hope will keep their loyal consumers using their products.

Regulation Is Coming

While instalment-based payments are not a new concept, BNPL offers a smooth instalment experience without the unpredictability of credit card debt. Without hefty fines for a missed payment and no extra charges for deferring payments, BNPL provides a seamless user experience and a quick way of spending.As the digital payments landscape leaps forwards, the frameworks that govern and protect consumers and merchants must adapt to ensure that there continues to be trust and reliability in payments technologies.

BNPL loans do not charge interest, which means they are not regulated as credit products. BNPL providers have had free reign operating in a relatively new space so far. But this may change. Authorities are concerned that these services inherently encourage young people to fall into debt, and a level of responsible lending checks is needed to instil confidence in consumers who are sceptical of this type of services.

A regulatory framework will help reinforce the viability of BNPL and enable consumers and merchants to reap the benefits of BNPL in a safe and secure manner, while ensuring financial and social responsibility across the region.

The Future of BNPL

The BNPL industry looks set to grow and grow. More concrete industry guidelines will be put in place to govern different aspects of the schemes such as credit assessment, payment authorisation, and marketing practices.As the regional landscape becomes more and more competitive, BNPL offerings will evolve to be more sophisticated as local providers seek to differentiate themselves. Providers will be looking to build loyalty through BNPL to encourage repeated purchases with cashback or reward programmes that reward on-time payments.

We can also expect to see the BNPL sector infiltrate beyond the retail and consumer goods sector. Expect the travel industry to allow buying trips now but paying for them later – a potentially vital lifeline for an industry that has struggled during the pandemic.

Pete Wickes is General Manager, Enterprise EMEA, Worldpay from FIS



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