Payments are arguably the face of fintech. When you think about financial technology, it is easy to think about solutions which are making payments faster, easier and more accessible.
Having debunked some of the biggest myths surrounding buy now pay later (BNPL), we now turn our focus on the technology’s potential. We reached out to the industry and asked if it believed BNPL could overtake credit card usage as new technologies rise in popularity.
Banks hold the power to take advantage of BNPL
Ralf Gladis, CEO, Computop said he did not think BNPL’s popularity would surpass credit cards due to it being “restricted primarily to online or in-store purchases, and many customers are happy to build up a good credit record by using their credit card.”
He continued: “What might be more relevant to look at is how banks can take a bigger share of the BNPL market. Accenture’s Global Consumer Payments Survey in 2022 found that four in ten customers would be more willing to adopt BNPL if it was a service offered by their main bank. As a result, banks are looking at how they embed this payment option into their platforms, and many are already doing it – Monzo and NatWest, for example.
“If they do this successfully – such as providing instant approvals and positioning themselves as the ‘responsible’ provider – the likelihood is that they will become the dominant players in the market.
Living together in harmony
A similar sentiment was shared by Edward Flanagan, partner at law firm, Shakespeare Martineau, who said credit cards and BNPL will live in symbiosis.
“Many banks are now embedding BNPL options into their consumer finance credit offerings in a bid to take advantage of the benefits of BNPL and to keep up with challenger fintech providers and, most importantly, safeguard their customer’s financial well-being.
“The adoption of BNPL by major banks and credit card companies gives the BNPL market an air of respectability – if they are offering it, it must be safe. Furthermore, credit cards are already regulated and so traditional credit providers are, arguably, in a better position to comply with any new BNPL regulation that may be implemented, which may involve applying for FCA approval and the associated burdens that come with that process.
“BNPL spending is on the increase but this doesn’t mean there is a corresponding drop in credit card usage as a result. Although increased credit card interest rates may encourage traditional card users to look at other less expensive repayment options, this is not an inevitable consequence. Research from Experian shows that consumers are not abandoning their credit cards in favour of BNPL.
Research says it all
Flanagan added: “According to Juniper Research, BNPL payments are expected to account for nearly a quarter of all global e-commerce transactions by 2026, up from just nine per cent in 2021. Younger generations prefer BNPL.
“Insider Intelligence forecasts 59 per cent of Gen Z and 53 per cent of millennials will make a BNPL payment in 2026, compared to 41 per cent of Gen X and 24 per cent of baby boomers. It’s a payment type that attracts all audiences, particularly Gen Z and millennials.
“GlobalData predicted that by 2026 in the UK, the credit card market size will reach $87billion in value of transactions while BNPL is expected to reach $47billion.”
Hope lies with the younger generation – but even then, there’s a long way to go
Moshe Winegarten, CRO, Ecommpay also looked at the technology’s users compared to those of credit cards to determine if it could out perform credit cards.
“Despite BNPL’s growth, it’s unlikely to surpass credit cards by 2025. At Ecommpay, we’ve observed BNPL’s popularity among younger demographics, while credit cards dominate among older millennials and baby boomers due to greater economic maturity and spending power. The BNPL market consolidation suggests it’s far from equal, let alone surpassing, credit card usage.”
Not a meteoric rise
Although BNPL’s popularity is driving considerable growth, it is not enough to truly advance the tech to a point it could overtake credit cards says Iryna Agieieva head of product payments at paytech Mollie.
“It’s highly unlikely that BNPL will surpass credit card usage by 2025. Despite its increasing popularity and 11 per cent CAGR growth, the credit card market significantly outweighs the BNPL global market. The growth rate, while fast, is not meteoric, and various challenges, including regulatory and socio-economic factors, have inevitably slowed down adoption. Like any emerging technology, BNPL expansion is likely to face constraints, making it unlikely to overtake credit cards in the near future.”
Serving different customer needs
Corinne Lleti, director general southern Europe, Provenir, the risk decisioning platform, identifies the benefits of both technologies. However, she does not see BNPL taking over anytime soon – although the possibility of it doing so in the future is not dismissed.
“Buy Now Pay Later is an attractive proposition for today’s consumers. The flexibility it offers, and the lack of interest is particularly alluring, making it the fastest-growing payment method. The global BNPL market is projected to reach $90.51billion by 2029.
“The growth of Buy Now Pay Later (BNPL) is undeniable as it provides consumers with an affordable way to split payments, as long as the payments are made on time. However, credit cards offer the advantage of being able to split payments on any product at any time, without requiring a specific offer. The practicality of credit cards has made them a convenient and versatile payment method, so it would be surprising if BNPL surpasses credit card usage by 2025.
“In the near future, both these payment methods will continue to exist with each serving a different consumer need.
“However, as BNPL becomes increasingly more widespread and credit-friendly, with numerous players entering the market, it’s likely to overtake credit cards as the preferred method of payment in coming years, although with increased regulation on the horizon, it will be certainly interesting to see how to industry will respond and whether the sector’s growth will be affected.”
A cultural shift is needed for meaningful change
Matt Purnell, research analyst Juniper Research, the market research firm, does not rule out BNPL overtaking credit cards, but he believes a lot of things must fall into place for the technology.
“Globally, no. Credit cards are too integrated in most countries that a massive but gradual cultural shift would be required for BNPL to become more prevalent. Additionally, not every country will see similar levels of BNPL adoption due to differing prevailing attitudes towards credit. However, BNPL is the one of the most used payment method for e-commerce transactions in markets like Sweden and Germany, so BNPL overtaking cards is a possibility that is dependent on a myriad of socioeconomic factors.”
