Buy Now Pay Later: The Modern Pioneer of Payments and Finance
Buy Now Pay Later (BNPL) is causing significant upheaval in innovative financing and online e-commerce solutions.
If we speak particularly about India, as per Goldman Sachs, consumer interest will cause the Indian e-commerce marketplace to expand to a $99 billion sector by 2024. The quickest digital mode of payment will be BNPL, which will rise from 3% in 2020 to 9% in 2024.
What is Buy Now, Pay Later?
A popular alternative to using a credit card while making purchases is to "Buy Now, Pay Later." Customers can purchase an item immediately and stipulate that they'll pay for it afterwards with scheduled payments by using a BNPL provider like Potlee. Buy Now Pay Later (BNPL) evolved as a convenient form of payment, providing free EMIs and reducing consumers' financial worries. Every month, new BNPL competitors come to the forefront.
What Has Prompted the Rapid Rise of BNPL Options?
This increase is primarily because of BNPL's ability to offer instant, seamless access to free-of-interest loans to consumers with just one click, to provide better convenience. The process is hassle-free, with quick credit approval without a cibil score check.
Online payment gateways like BNPL are favored by newer generations like Gen Z and millennials over conventional forms of payment. Retailers also profit from immediate settlement to merchants, which isn't a feature of credit card payments.
Is BNPL a Good Alternative to Credit Cards?
To ensure a more frictionless customer and retailer interaction, tech-savvy clients, Gen Z, and Millenials, are embracing the concept of micro-credit and BNPL solutions.
Credit cards have been prevalent for many years and seem to have inevitably entered the habitat of online shopping. On the other hand, resources and time are consumed due to the challenges of verification, credit history regulations, multiple sessions of identification, etc.
As millennials and Gen-Zers grow impatient with conventional procedures and insist on convenience and accessibility, BNPL has upped the ante to eliminate these areas of friction.
The growth of Buy Now, Pay Later
Among the e-commerce methods of payment that are expanding the fastest right now is Buy Now, Pay later. By 2030, the size of the global BNPL industry is anticipated to surpass $39 billion, with an annual compound growth rate of 26% from 2022 to 2030. To take advantage of this growth, retailers collaborate with BNPL service providers to offer customers lenient credit alternatives.
Most BNPL suppliers make it comparatively simple to incorporate the digital payment solution into an online store. If your company uses a well-known e-commerce network such as Shopify, the implementation can hardly require a handful of clicks. Avoiding BNPL solutions could misplace your company in the competitive market because they have a limited threshold for e-commerce inclusion and significant potential growth for volume sales.
Why and in What Ways Would BNPL Change?
According to research, the global market for BNPLs would grow to $3.98 trillion by 2030. Fintech companies have pursued this industry because of the expanding prospects of the BNPL sector. The level of BNPL services needs to be significantly raised if they stay current with this exponential expansion. There is just a soft credit check at the moment. A credit report is necessary to safeguard customers against debt exceeding their limits and guarantee a greater probability of payments.
Regulators require data on consumer credit induced by BNPL. Since this industry is unregulated, there is currently no mechanism to monitor the connection between debt formation and BNPL. This knowledge will aid authorities in controlling the effects of consumer debt on the economic system.
Lastly, reward systems and relationship management plans can create a positive customer experience and compete with credit cards by attracting them. With regards to BNPL's performance, this may be a key distinguishing feature in the long run. Likely, BNPL will substantially overtake credit cards in the future.
What Lies Ahead for BNPL?
Collaboration and Consolidation Strategies
As per statistics, 69% of Millennials and 42% of Gen Z are more inclined to spend money if BNPL services are readily available, and roughly 50 percent of them would not purchase from a merchant that did not accept BNPL payments. It indicates that BNPL businesses must raise their gross merchandise value and attain scale economies to thrive. Additionally, they require sufficient funds to compensate for potential losses.
Strengthening Customer Loyalty
Retailers will fairly shortly provide many BNPL services as BNPL begins to be seen as a financial instrument. Fintechs will need to increase the range of products they offer to win over consumers and merchants. In addition, organizations with a substantial degree of insurance and other financial products benefit most from strong customer loyalty because it creates more cross-sell possibilities.
Competition and Regulatory Requirements
In contrast to credit cards, regulators have given BNPL businesses a great deal of latitude. This will alter when the BNPL market expands. There are growing fears that some consumers can experience a cycle of debt. Although the media highlights a selection of possible concerns, we are yet to see detailed and extensive research on the subject. Most customers choose BNPL because they would not be able to afford the purchase. Whatever the true scope of the issue, policymakers are now being subjected to pressure from the public. With it, BNPL products will be subject to more regulation.
The Future of BNPL
The growth of sizable BNPL fintech firms appears secure; however, the road to profit growth and substantial market penetration in the loan service catalog will be difficult. The US seems to be the primary battlefield of the developed banking markets for now, but there are undoubtedly aspirations to expand. Big corporations will vie for smaller BNPL businesses in "developing" areas to create an acceptance ecosystem. After the struggle, we'll probably see a few global suppliers and a few community officials in places where big firms struggled to prosper.
One thing is sure, given BNPL's rapid expansion: it will continue to expand in the coming years. As a result of this increase, governments are continually evaluating how to regulate and control BNPL operations and their credit policies. Customers are still very hopeful about the increased consumer spending that accompanies the option to make payments in four parts instead of all at once, even though some projected modifications are likely.