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  • Thierry Spanjaard

BNPL: an old practice revitalized

Since its beginning, payment innovation always towards in the same direction: always make payment easier and less painful, in order to part consumers from their hard earned money.

The financial community is now organizing itself in making always more BNPL offers. But what is BNPL? The acronym stands for “Buy Now, Pay Later,” which is a nicely found gimmick to describe payment in installments that has been in existence as long as there are payment systems: deferred payments were already common in the Roman Empire.

So, what’s new with BNPL? It is based on a simple idea: four small payments always appear less threatening than a large one. The supporters of the solution have demonstrated that some consumers using credit cards fear the accumulation of debt and that, in fact, a card credit ends up being quite costly. This is why they advertise BNPL saying it brings consumers peace of mind as they can anticipate their repayments. Thanks to its gurus, BNPL has been turned into a marketing tool to propose brands to address targeted and personalized offers to consumers, adapting them to each consumer profile and financial constraints.

The action is extremely successful as spending on BNPL in the US has increased 230% in the last year, according to Accenture. Typically, during this holiday season, BNPL is mainly used by Generation Z and Millennial age groups for fashion, footwear, beauty, homeware and fitness, all being essentially impulse retail purchases. BNPL will account for 6% of U.S. e-commerce sales in 2021, or US$ 974.2 billion (EUR 863.5 billion). By 2023, that figure will top US$ 1.4 trillion (EUR 1.25 trillion), or 13% of online shopping, Accenture adds. In the UK, the use of BNPL products nearly quadrupled in 2020 and is now at GBP 2.7 billion (EUR 3.2 billion), with 5 million people using these products since the beginning of the coronavirus pandemic, according to UK’s Financial Conduct Authority (FCA).

However, critics consider that some consumers are pushed to use BNPL even without really noticing it, and many of them then struggle to face repayments. According to a study by Credit Karma, 34% of those who have used BNPL services, have fallen behind on one or more payments. Also many of them do not realize BNPL is actually borrowing while they have already built some debt. They call for regulation to make terms and conditions clearer to end users and ask them for an enlightened consent before signing up for BNPL. The UK FCA writes in a statement that its “Board agrees that there is a strong and pressing case to bring buy-now pay-later business into regulation.”

The BNPL environment has led to the development of a few specialists: Affirm, Afterpay, Clearpay, Klarna, Laybuy … and now, mainstream players such as Discover Financial, Elavon, Fiserv, TSYS, and others in the US, Sparkasse in Germany, Jumia in several African countries, Oney, Cofidis or Cetelem, French corporations with their roots in consumer credit, and Amazon worldwide, are willing to enter this arena. Solutions are provided by Mastercard, Visa and many other leading players in the payment arena.

So, how has a practice that was centuries old made a comeback to the center of the stage? The answer is as usual: marketing!!!! First a new acronym was created, then players all issued their apps, they demonstrated the data they collect allows to trigger more impulse sales, and finally Xmas is here! All ingredients for success are together. Probably the best hint for success is the will of authorities to regulate BNPL. After BNPL, what’s next?

Photo credits: Photos by John Schnobrich, by CardMapr, by Laura Chouette and by Victoria Heath, all on Unsplash

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