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BNPL Could Reach 670 Million Users by 2028: Will Any Firms Still be Around to Prosper?

Another buy now pay later (BNPL) firm has decided to call it a day as Laybuy has put itself up for sale. The announcement has come following a turbulent time for the company as its valuation plummeted from a valuation of £230million in 2020 to £5.4million in 2024. There have been various reports about the struggles of BNPL firms as regulations tighten, so we reached out to the industry to uncover what is needed for firms to survive.

Laybuy is not the first BNPL whose value has taken a dive. In Q1’23, the Australia-based BNPL Openpay announced it was going into receivership following an all-time high total transaction volume. Additionally, in Q4’23, ZestMoney, the Bengaluru-based BNPL also announced it was shutting down following an attempted revival under new management.

Since the pandemic, BNPL has been an increasingly popular payment method. The idea of allowing users to make interest-free payments over time without a credit check was a resounding success. However, a lack of clarity surrounding the fine print and the fees that would be paid on late payments quickly began to haunt BNPL with many users blaming the service for falling into debt.

Nonetheless, when used responsibly the payment method can be very helpful to users and provide them with a financial lifeline; users are becoming increasingly aware of this. Research from Juniper Research has revealed that by 2028, the BNPL userbase will increase by 107 per cent to, from 380 million users in 2024.

The state of BNPL in 2024

Juniper Research found that despite fintech companies commanding the BNPL market for years, 2023 saw a major shift, as superapps and banks gained traction. WeChat and Grab are notable superapps offering BNPL to users, embedded within platforms offering numerous products.

Klarna recognised the potential of superapps; transforming its app into one. In future, the market will see not only more superapps offering BNPL, but consolidated retail experiences tailored to consumer demand; altering market shares significantly.

When it comes to banks, American Express launched its BNPL solution in late February. However, it was not branded as a BNPL product – instead it was called ‘Plan It’. ,

Not every bank and financial institution is finding success with BNPL though. In March 2024, NatWest announced it was closing down its BNPL service due to low usage.

This makes it difficult to judge the success of the future of BNPL: while some firms are finding success and exploring new integrations, others are turning away from the solution altogether. To ensure that the latter doesn’t completely take over, we asked the industry what was needed to ensure long-term success for BNPL firms and those offering it.

Education and regulation work hand in hand
Justin Passalaqua, managing director, North America at Worldline
Justin Passalaqua, managing director, North America at Worldline

Justin Passalaqua, managing director, North America at Worldline, the payments organisation notes how organisations must listen to their consumer desires. Following this, they must ensure they properly educate consumers on how to use their services, all the while remaining compliant.

“Several strategies can help the BNPL industry recover in the market. Consumer education must be prioritised. Many consumers lack awareness of responsible spending practices when utilising BNPL services, potentially leading to overextension and budgetary challenges. Providers should offer detailed information on making financially sound purchases including disclosing all fees and sharing best practices for using installment payments.

“Industry regulation is needed to protect both consumers and BNPL providers while allowing for market growth and healthy competition. Regulation could include fee and interest limits, consumer affordability assessments, and audits of advertising and contracts. As BNPL moves into niche sectors such as healthcare, travel, and recreation, customer education and regulation become increasingly important.

“As newer payment methods become popular, the demand for innovation increases. BNPL providers must listen to consumer needs and adapt to evolving trends and preferences.

“Risk management needs continuous improvement to protect both providers and their customers for BNPL to remain a sustainable option. Consumers and providers need to keep high-interest rates in mind and navigate the impact on BNPL usage.

“BNPL has soared in popularity as a payment method. If both consumers and BNPL providers exercise caution, demand regulation, and increase financial literacy, the trend may continue to boom for years to come.”

Creating a more efficient system
Kathy Stares, executive vice president of North America at Provenir
Kathy Stares, executive vice president of North America at Provenir

Tech can be the solution to ensuring BNPL longevity explains Kathy Stares, executive president of North America, Provenir, AI-powered credit risk decisioning platform. She says: “An advanced risk decisioning foundation helps ensure BNPL providers aren’t losing revenue to default and fraud, while stemming revenue loss by avoiding unnecessary data calls and bloated processes. Eliminating excess data ensures every data point is earning its place and adding value to decisioning.

“Additionally, the use of artificial intelligence and machine learning enables analysis of decisioning processes. Are there redundant data sources? Are they the right sources for your target market? Is each data point coming at the right step in the process? In short, how effective is your data? With embedded reporting, organisations can continuously optimise their strategies to keep pace with the needs of the business.

“These efficiencies are key to long-lasting BNPL success by reducing cost on the backend and minimising both customer default and churn rates. Running more efficient processes that can increase application volume and more accurately define affordability, provides the ability to serve more customers who are more likely to pay on time.”

Cue open banking
Suzanne Homewood, managing director at Moneyhub
Suzanne Homewood, managing director at Moneyhub

Suzanne Homewood, MD of decisioning at Moneyhub, the data and payments fintech, explains why open banking holds the key to help BNPL.

“Short-term lending and BNPL are missing a trick.  They have been lending to customers, playing on the ‘want it now’ drug of late-night shopping, and more recently have started to support purchases of everyday essentials as people struggle with the cost of living crisis.

“However, with no check on real affordability to repay in three months, the unsuspecting customer can find themselves with hefty interest repayments or even a debt collection call for a pair of trousers that remain unworn.  For the BNPL companies, this is reputational damage, and consumer harm, both of which (quite rightly) create a storm of consumer concern and market suspicion.”

Homewood continues: “One solution for the BNPL market to regain trust and confidence, is to introduce open banking affordability, not just once at application, but across the whole period of the short-term loan.  Long-term unsecured lending is seeing a 48 per cent improvement in first bill payment success, and a 33 per cent improvement over the first three months by using open banking affordability to check for funds and check ongoing affordability.

“For customers who are happy to consent for this 90-day sharing of data, they have the support of the lender to be able to detect early when things change, and step in with alternative options, negating debt recovery costs, and increasing customer satisfaction.

“If BNPL companies adopted this solution, they could create a deeper relationship with customers, make their products truly reflect the customers ability to repay, whilst still running a profitable business, and using data to identify where else they could offer short-term relief, in a sustainable, ethical and customer outcome focused way.”

Everyone must benefit 
Tom Eyre, co-CEO and co-founder of credit broker Loqbox
Tom Eyre, co-CEO and co-founder of credit broker Loqbox

Ultimately for BNPL to see long-term success and reach its potential, both consumers and merchants need to be winners. Tom Eyre, co-founder and co-CEO of Loqbox, the financial health platform focused on credit says: “BNPL regulation will only be worthwhile if it works in the interest of both consumers and businesses.

“Of course, some BNPL players say regulation will reduce the amount of innovation in the space. But if they were doing the right things by their customers from the start, they wouldn’t be complaining about regulation, because they’d have been self-regulating anyway.

“But regulation should not be a knee-jerk reaction in response to a backlash against STHC credit, BNPL or any other new business model in what is clearly an incumbent-heavy space such as financial services.

“There have been numerous calls for a wholesale replacement of the Consumer Credit Act (the “CCA”), the legislation that underpins the consumer finance industry. I am extremely wary of regulatory revolution vs evolution. The financial services sector in the UK is one of the best in the world. It relies, in part, on clearly understood, well-defined regulation that has stood the test of time.

“This regulation forms the foundation of many established products and services. Wholesale change of regulation in the name of revolution in support of innovation feels like a potentially risky prospect.

“The Treasury had until recently been proposing a removal of the exemption that many BNPL players rely on to offer their products outside of the regulatory perimeter. Such a change seems like a sensible evolution of the CCA and, when combined with the nascent changes in regulatory approach brought on by the new Consumer Duty rules, it’s hard to imagine a world where regulated BNPL products do not take their place as a welcome part of a well-running financial system.”

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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