Hey Guys,
I used to write a lot about the future of retail. I’m been pondering the future of BNPL a lot recently since the announcement of Apple Pay Later.
The buy now pay later market size is projected to hit US$ 3268.26 billion by 2030 and is expanding growth at a CAGR of 43.8% over the forecast period 2021 to 2030. - Precedence Research
So who are going to be the big players? Here are some of the potential candidates as I see them:
Apple
JP Morgan Chase
Ant Group (i.e. Alipay)
Block (via $29 Billion acquisition of Afterpay)
Klarna
Affirm
JD.com
PayPal
Tencent
Others have the BNPL at $39.4 Billion by 2030, whatever the case may be this is what could disrupt credit cards. That’s sort of a big TAM.
Since China is really at the heart of consumerism, you could say that Shanghai really is the 21st century center of Capitalism, the BNPL leaders there will be very important. Some see it as an $11.3 Trillion potential TAM in China alone.
BNPL is FinTech’s Coming out Party
According to Precedence Research, the global buy now pay later market size was reached at US$ 125.09 billion in 2021. The people can use buy now pay later to make purchases online and in stores without having to pay the entire amount up front. Debt based consumerism is already really central to how the U.S. consumer economy works. BNPL further tweaks it and alters the very fabric of the future of payments at scale.
The buy now pay later industry is likely to develop as people become more aware of installment-based payment solutions. So here yet again is another paradigm shift in the 2020s impacting consumers tested during the pandemic.
The stock volatility in Affirm alone is an indication of how bullish people are on the BNPL market.
When last year in August, 2021 Square announced plans to buy Australian fintech company Afterpay, which lets customers pay in four interest-free installments and pay a fee if they miss an automated payment, there were rumors that JP Morgan would launch its own BNPL product.
The advent of companies like Stripe, have changed a generation of payments, and Apple Pay integration BNPL into their product is truly fascinating. It’s widely understood that BigTech could eventually swallow banking and the A.I. of healthcare, if legacy banks, financial services and healthcare bodies don’t update with A.I. into becoming technology companies themselves.
With uncertainy comes great opportunities. Think about it in November, 2021 when a House Subcommittee on Financial Services hearing titled “Buy Now, Pay More Later?” was convened, it was clear that rising installment debt is a concern at high levels. Now with inflation and higher interest rates, sky high oil prices and looming recessionary fears, it’s a unique time in global capitalism.
The moment was 2020, the year of the great pandemic. BNPL (or “buy now, pay later”) space facilitated upwards of $20 billion in U.S. transactions in 2020 alone, and some have concluded that the growing appeal of BNPL is generational. As a futurist, I would have to concur, this is a legit trend that will re-shape our consumer experiences and the future of retail itself and there is no clear winner yet.
BNPL is a U.S Led Trend
North America dominated the buy now pay later market with a share of 30.1% in 2021. The regional market growth can be attributed to the presence of a large number of prominent players in the region.
Growth rate: CAGR of 26.0% from 2022 to 2030
The Gamification of Retail Therapy
With all this war, pandemic and climate change struggle, our mental health sometimes need some retail therapy and BNPL is a game of easy money, actually paying for it later. It’s pretty intense.
As borrowing gets more expensive, Apple is looking to make it easier for consumers to make purchases in the short term. And it’s not alone.
Just one year ago in June, 2021 Klarna was valued at $46 Billion, an absurd amount at the time. Square buying Afterpay for $29 billion seemed like a good idea. Some of the numbers also sound a bit wild. According to the Q4 2021 BNPL Survey, BNPL payment in the United States is expected to grow by 66.5% on annual basis to reach US$ 82,086.8 million in 2022.
BNPL companies own a certain network of merchant and retailers. Think about it, Afterpay served more than 16 million consumers and nearly 100,000 merchants globally, including major retailers across industries such as fashion, homewares, beauty and sporting goods, among others at the time of being acquired by Square, that’s now called Block.
In August, 2021 Klarna said it surpassed 20 million U.S. customers as the shear demand for flexible payments soared. Of course recently as we might have heard, Klarna had huge layoffs.
Apple’s new Pay Later feature is expected to launch in September, 2022 with the release of iOS 16, and allows borrowers to pay for items in four installments over the course of six weeks with zero interest and zero fees.
Given the momentum there’s a fairly high chance of Affirm and Klarna being acquired too. Given the NASAQ correction of the last six months, their market cap would also have to be adjusted to the times.
FinTech BNPL model is driven by a tolerance of risk that doesn’t seem natural for most other businesses that lend. Given that consumers are feeling the pinch at the grocery store and at the pump, not to mention rent and labor costs being passed down to the consumer, it’s a crazy reckoning for BNPL as well. That’s the perfect context for consolidation to occur. Judging by U.S. standards, having two or three winners who take the majority of the TAM, seems highly likely before 2035.
Amazon could acquire Affirm. At the time of writing, Affirm’s market cap according to its stock price is only $7 Billion now. It’s down 74% year to date, like so many other things and the NASDAQ 100 is down around 23% during the same time. China’s vast BNPL potential seems untapped and China will certainly want an internal winner.
There’s been a surge of interest in BNPL services in China over the last decade, yet the trend seems to have taken off in the U.S. and Europe for the most part in recent years. When compounded with the fairly large cost of acquiring consumers and the fact that consumers have to change behaviors to use the option, BNPL is a fascinating case study for the future of retail itself. What will be the risk tolerance of consumers as they emerge from a pandemic into a likely global recession and how will BNPL adapt to the new retail environment of more stingy consumers?
With ticket sizes on BNPL purchases rising, every change in consumer trends is magnified in BNPL ripples. With a likely recession approaching that will impact consumer sentiment, common sense dictates that a BNPL correction is likely to take place in late 2022 or in 2023. The question is, how will that period shake up who acquires who in the space?
While it’s clear that Block and PayPal have a lot of skin in the game, who else will enter the space? Will Amazon? Who else is capable of making their own in-house product? Walmart? Tencent? Perhaps even Stripe itself? Certainly Ant Group if they were allowed to, with all the regulation I’m not sure what they will still be able to do. What would BNPL with Chinese characteristics feel like anyway? In a country where they have put too much of their generational wealth into a real-estate sector now in crisis. Seems like a gambler’s economy, or a shadow banking house of cards to some extent.
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