The Future of BNPL and Its Impact on the FinTech Industry

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BNPL (Buy Now, Pay Later) is a form of online lending that allows users to buy goods or services with deferred payment. BNPL provides you with the opportunity to access the goods or services you need without having the full amount on hand and pay it off later, usually in several weeks or even months. In this article, I will elaborate on the prospects of such type of financing and the impact it can have on the entire FinTech sector.

Globalisation of BNPL solutions and their expansion into new markets

Nowadays, the BNPL concept is becoming increasingly popular all over the world, especially in Europe, North America and India. One of the reasons BNPL is gradually conquering the FinTech sector is that both customers and merchants are able to reap the benefits of it. On the one hand, it is extremely convenient for people not having to pay the full amount of money at once, and, on the other hand, the majority of modern merchants see BNPL as the perfect tool to increase their sales.

The COVID-19 pandemic has also had a positive impact on the online market. As the crisis has limited household incomes across the globe, the search for liquidity has increased and is expected to continue throughout 2023. The pandemic has definitely led to a new normal in online shopping, where consumers are confident in purchasing products using different online payment gateways.

It is predicted that the global BNPL transactions will reach almost $600 billion by 2026. Last year, more than $214 billion of client assets passed through BNPL services, and this figure is set to triple.

Source: GlobalData

The main international BNPL providers that benefit significantly from this revolutionary concept are:

• Paypal (US);
• Klarna Bank (Sweden);
• Laybuy Group (New Zealand);
• Payl8r (UK);
• Billie (Germany);
• Affirm Holdings (US);
• Yandex (Russia)

Interaction of BNPL with other FinTech divisions

Nevertheless, the BNPL concept isn’t the only thing that has blown up the FinTech market in recent years. The same can be said of cryptocurrencies - digital currencies designed to serve as a medium of exchange through a computer network. These currencies are backed by cryptography and can therefore offer the most secure transactions possible. Along with BNPL, cryptocurrencies are the most talked about trends in the modern global economy. But can these two concepts co-exist?

Absolutely.

When BNPL providers carry out integrations with crypto wallets, it’s a win-win situation for both sides. For example, the aforementioned Klarna Bank decided to enter the cryptocurrency market in 2021 and concluded a partnership with Safello, Sweden’s leading online crypto brokerage. As a result of this fruitful cooperation, Klarna customers received much more digital options of paying for their BNPL bills, and Safello users were granted the opportunity to buy cryptocurrencies directly from the bank and with no interest.

Speaking of BNPL and further FinTech divisions, I cannot but mention e-wallets. PayPal, one of the world’s most popular digital wallets, has the whole BNPL section on its website. At the moment, PayPal offers two primary types of Pay Later products - Pay in 4 and Pay Monthly, each having its own pros and cons.

Source: PayPal

I have no doubt that these integrations are only the beginning of the new wave of innovative partnerships aimed to blur the boundaries between BNPL and digital assets. The implementation of crypto payment methods into BNPL technologies can be the groundwork for radical changes in the whole FinTech sector, as it will make the market more diversified than ever.

Adapting BNPL models to local specifics and legislation

However, each BNPL model must be adapted to the local market in which it operates and comply with the legislation of a certain country. Let’s have a brief look at BNPL’s situation in some of the world’s leading countries:

• United States. Despite the fact that BNPL models are currently thriving in the US, they have been facing inconsistent regulatory and enforcement strategies from federal and state regulators. On November 16, 2022, the U.S. Department of the Treasury, in consultation with the White House Competition Council, announced support and encouragement for the CFPB’s inquiries into BNPL providers, in a report finding that the FinTech industry requires additional oversight to close gaps, prevent abuses, and protect consumers.
• United Kingdom. In June 2022, the UK government issued a response document concerning BNPL. With this document, the government aimed to protect millions of people from being scammed by unfair BNPL providers. As such, if a BNPL provider is willing to enter the UK market, they are immediately captured by the government whether they offer their services offline or at a distance, directly or by third-party lenders.
• Germany. It is widely-believed that the BNPL market has existed in Germany since the early 1970s and it still enjoys popularity. According to the German jurisdiction, the maximum credit period that a BNPL provider can offer to its customers is strictly regulated and cannot exceed 12 months. Quite recently, the German Federal Financial Supervisory Authority has issued the consumer guidance reminding that the country’s consumer protection provisions don’t apply for amounts lower than EUR 200. Simply put, the German law cannot protect people from getting scammed by unfair BNPL providers if they purchase a product that costs lower than EUR 200.

Mergers and partnerships between BNPL providers

In order to enter foreign markets faster and easier, or to strengthen the position in the local markets, BNPL providers sometimes merge their businesses or, if the provider is big enough, it can acquire the smaller one.

In this way, PayPal acquired Paidy, a Japanese BNPL firm, for $2.7 billion in cash, willing to expand its foothold in the Japanese market. At that time, Japan had the world’s third-largest e-commerce market, and the deal was obviously mutually beneficial. Paidy’s payment services allow Japanese shoppers to make purchases online, and then pay for them each month in a consolidated bill at a convenience store or via bank transfer. The company uses proprietary technology to score creditworthiness, underwrite transactions and guarantee payment to merchants.

Another deal worth mentioning is Square’s purchase of Afterpay. To put you into context, Square is a digital payment platform founded by Twitter’s Jack Dorsey, and Afterpay is a major Australian BNPL provider. It cost Square $29 billion to complete the deal, which turned out to be the largest buyout in Australian history. The deal was closed in 2022, and two of the fastest-growing FinTech firms in the world have come together to create an online payment powerhouse.

Competition between BNPL and traditional banking products

The competition between BNPLs and traditional banking products is becoming immensely fierce. BNPL platforms offer consumers more flexible payment terms and lower lending costs, whereas traditional banking products, such as loans and credit cards, imply fixed interest rates and usage fees.

However, banking products still have one big advantage - you can use a credit card to pay for literally anything, including mortgages or car loans, where BNPLs can’t provide access to such products. On top of that, during the last 6 months, a lot of banks started offering their own BNPL services to customers with a good credit history. Such financial institutions (mostly Indian) as HDFC Bank, LazyPay, OlaMoney, ePayLater, and Kotak Mahindra Bank, have already introduced this functionality for their clients. This list is going to grow exponentially and soon be replenished with European and American banks.

Overall, the competition between BNPL platforms and traditional banking products will continue and take a whole new turn once BNPL providers will be able to offer their landing form for a wider range of products, which will inevitably happen.

Conclusion

I firmly believe that the BNPL concept will be the main driving force behind the bright future of FinTech. There are already dozens of examples of multi-billion dollar acquisition/merger deals, where BNPL providers serve as one or even two parties involved. Many technology start-ups are developing new products based on BNPL, such as instalment payment applications. Although the BNPL concept still has something to work on, it continues to gradually evolve, and we are about to witness a plethora of innovations and breakthroughs in the nearest future.