Voice of the Industry

BNPL: About scale-downs and who's keeping up with the trends

Monday 19 September 2022 09:00 CET | Editor: Raluca Ochiana | Voice of the industry

The Paypers presents BNPL’s size of the market, scale-downs, Klarna’s story as well as latest developments in this field.

Size of the market

One of the most recent prognoses in the Buy Now, Pay Later (BNPL) global market forecasts that the payment method would reach USD 39.41 billion by 2030 , registering a CAGR of 26.0% from 2022 to 2030. As the experts at Grand View Research explain, the market growth can be attributed to the high purchasing power offered by the BNPL platforms, coupled with consumer benefits, such as interest-free and convenient payments.

In July 2022, Adriana Ellice-Flint, product leader for payments platform Receeve, explained for The Paypers that the exponential growth in ecommerce and the impact of the pandemic have fuelled the rise of BNPL, making it one of the biggest retail trends in the fintech space. This indeed has been the ongoing narrative for the last two years.

While the BNPL term is used to encompass lending and instalment propositions for B2C and B2B ecommerce, the use cases and product portfolios vary widely from region to region. In Southeast Asia, only 27% of the total population of 670 million inhabitants has a bank account. In this general context, BNPL providers, multiservice providers, and banks alike compete for the same piece of the pie, while according to a ReportLinker study dating back to February 2022, market consolidation is ongoing and expected to continue as bigger participants acquire smaller ones. Worldpay estimates that (BNPL) will only account for up to 2% of ecommerce payment methods by value in APAC by 2025 (especially compared to Europe, which is estimated to register a 12% market penetration by the same year).

Latest developments

The world vs BNPL regulation

Back in Europe, in January 2022, the UK Treasury closed a consultation calling on industry experts to share 'views on the creation of a proportionate approach' to the regulation of BNPL. The British government introduced amendments to existing regulations in June 2022, including requirements for lenders to carry out affordability checks and amended financial promotion rules to ensure BNPL advertisements are 'fair, clear, and not misleading'. In the EU, while strongly articulated regulation directly aimed at what BNPL means for the consumer market is yet to be passed in Brussels, the European Council did revise its consumer credit directive in June 2022, aimed primarily at digitalisation and financial education for the public.

Several Asian countries are looking to regulate the framework for the issuance of consumer credit (Malaysia and Singapore being just two recent examples). In the US, the Consumer Financial Protection Bureau (CFPB) is keeping a close eye on consumer credit products. A probe announced in December 2021 asked major players Affirm, Afterpay, Klarna, PayPal, and Zip to provide insights into the risks and benefits of their products, promising to take the data and translate it into a bill that would level the playing field between alternative lenders and banks, while flattening the overall ecommerce debt ushered in by BNPL in the country.

Big players keeping up with the trends

A number of banks have tried over these past years to get in the BNPL game, promising increased security and dependability. Deutsche Bank is the most recent example, announcing its cooperation with Austrian fintech Credi2 to develop a white-label BNPL product for online retailers and ecommerce marketplaces.

Big card schemes are not far behind. In May 2022, Visa shed light on a fresh product, Visa Ready for BNPL, a new instalments partner programme. Visa Ready for BNPL is meant to fast-track implementation and scalability of Visa’s BNPL offering by enabling fintechs and select issuers to integrate Visa’s solutions.

The big BNPL scale-down of 2022

While it’s not all that grim, and big names are expanding (Revolut setting up BNPL operations in Ireland or Affirm partnering with Stripe to take on a bigger part of the US BNPL market), others are scaling down visibly.

American BNPL provider Sezzle informed Indian merchants of its decision to exit the Indian market in April 2022 and requested them to deactivate the service from their respective websites. A few months after, what seemed like one of the most relevant partnerships in the BNPL niche fell through with Zip and Sezzle terminating their previously announced merger agreement. The timing of the move, as per both companies’ statements, comes amid a drop in investment strategies towards speculative technology firms ‘as the Ukraine war and supply chain problems push up inflation and interest rates, eroding consumer purchasing power’.

In July 2022, Australian BNPL operator Openpay decided to close operations in the US. According to Reuters, the American expansion caused Openpay's losses to increase by 65% in H1 2022 – and current economic and market conditions, along with ‘the likely ongoing capital investment required’ forced Openpay to stop extending loans and cut most of its US unit's staff.

The Klarna situation

Klarna climbed a steep and dizzying rollercoaster this year, and it appears to still be riding it. After the capital injection that led the BNPL giant to achieve a valuation of USD 45.6 billion in 2021, Klarna’s valuation dropped dramatically this year by 85%, a process that came with massive downsizing and changes in the market strategy.

In July 2022, they managed to secure a USD 800 million investment meant to be infused back into its US expansion, where they had previously made a slew of product launches, including digital wallets for loyalty cards and alternative credit cards, not to mention a Virtual Shopping tool launched in May 2022.

This article was first published in Payment Methods Report 2022, the most updated overview of trends and developments in the payment methods space and the innovative technologies that these methods work upon, emerging consumers habits, and strategies on how to win at conversion and retention.

About Alexandra Constantinovici

Alexandra is Senior News Editor at The Paypers. A passionate writer, Alexandra has an extensive background in journalism – as a graduate of Journalism and Communication studies –, as well as editing, publishing, and marketing. She coordinates the news coverage at The Paypers and, together with the team of editors, she strives to bring forward the latest trends for our readers, while investigating and sharing with our community the upcoming innovative industry shifts.

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Keywords: BNPL, payment methods, regulation, instalment payments, digital wallet, fintech, white-label, credit card
Categories: Payments & Commerce
Countries: World
This article is part of category

Payments & Commerce