The market for buy now, pay later
The BNPL space began taking shape in 2014 when Afterpay, an Australian BNPL provider, launched its BNPL solution and began paving the way for others in the space. Their success led to other providers, like the Swedish group Klarna, to see monumental success overseas. Klarna has established themselves as Europe’s highest-valued fintech company and one of Europe’s largest banks. In New Zealand & Australia alone, Afterpay has 3.3M active consumers. These providers have dominated the eastern markets and have now set their sights on North America.
The emergence of BNPL on U.S. shores has come as physical retailers continue to cede market share to online channels and COVID-19 accelerated shifts in consumer behavior.
Back in March when the U.S. began implementing COVID-19 measures that caused uncertainty in the market, there was a clear decline in demand for new credit cards. The Fed recently reported that the second quarter of 2020 saw a staggering $82 billion decline in credit card balances. One theory for this is that consumers are now swapping out revolving debt with more predictable installment products.
BNPL gives consumers the option to finance purchases in smaller amounts over time with more confidence in their ability to pay it off without the additional costly interest of a credit card. E-commerce in the U.S. is forecasted to grow to almost $1 trillion by 2023. This trend has only been accelerated by the COVID-19 pandemic with e-commerce penetration forecasted to jump to 27% of retail sales, up from just 16% a year ago.