The world's fastest growing e-commerce payment method, 'buy now, pay later'. Yet, many wonder what's next for BNPL fintechs. At one point, a niche form of credit, BNPL, exploded during the pandemic and has been dubbed by some as 'the future of finance for Millennials'. In fact, the revolution is being driven by Millennials and Gen Z who make up 75% of BNPL customers. The thing contributing to BNPL's still-growing popularity is the need for flexible payment options and an aversion to credit cards.
The notion of deferred payments is not new. Segment/installment payments have long been a solution for those who could not afford to pay with cash. One of the most successful financial products of the 20th century, credit cards are a buy now, pay later tool if you think of it. Mainly, younger generations brought up in a fully digital environment, credit card services may be an outdated concept. A room was made for disruption and smaller, more agile competitors entered the market, offering cheaper, and more accessible and innovative products. The ones who were locked up at home turned to online shopping, and soon e-commerce numbers soared. BPNL (buy now, pay later) had its day, and with further iterations and product improvements, its startups were able to rise up and take a bigger market share from traditional financial institutions.
Often, BNPL solutions are considered as no-interest credit solutions that do not require credit checks. Along with strong funding and investors looking for returns, we must see lots of innovation from BNPL companies in upcoming months. Plenty of BNPL fintechs emerging means one thing is certain that some will fall. A number of BNPL providers rely on income from the transaction fees they charge retailers, who have an incentive to agree to this as it often leads to higher average order value and better conversion rates. Research says that 42% of Gen Z and 69% of Millennials are more likely to shop if a BNPL service is offered, and nearly half of them would not buy from a distributor who did not offer BNPL payment options.
The future of 'buy now, pay later' seems assured, although the path to profitability and significant market share in the lending services segment will be a struggle. In the ascending markets global companies will be seen racing to acquire smaller BNPL players to build a network of acceptance. The moment the battle dust settles, there is a possibility of seeing a handful of global providers and some local leaders in regions where top brands failed to succeed.
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