17/06/2022
Having re-shaped both and in the past decade, BuyNowPayLater keeps producing headlines: whereas some are proclaiming its death others are praising Apple for entering the game. Where is the truth? Let’s take a look.
What started as a niche segment offering from specialized players more than a decade ago, has become a multibillion industry that nobody can ignore: the global industry is worth about $US157 billion, according to WorldPay’s 2022 Global Payments Report.
The idea of facilitating installment is not new; it actually goes back decades to department stores (especially in the US), however the rise of e-commerce and FinTech , have played a catalyst role in transforming BNPL into what it is today.
Its modern FinTech reincarnation has led to huge success on the basis of a strong dual appeal to both consumers and merchants. For consumers it’s convenience through a streamlined, low-friction, integrated check-out experience, whereas for merchants is boosting conversion rates and average order value.
The pandemic has clearly marked a milestone for the industry with on-line (and mobile) shopping becoming the new norm and BNPL getting a significant chunk. However, the picture has changed dramatically as of late:
– Valuations around the globe have collapsed: US player Affirm now trades at a $5.33 market cap vs a $30 bn peak – a 75% change over a year – whereas in Australia, home to 15 pay-later stocks, the most of any bourse, more than $28 bn of market value has evaporated from the sector, according to Nikkei Asia
– None of the major pure-play BNPL players – the likes of Klarna, Affirm, Afterpay and Zip – is currently profitable
– Klarna, the biggest player of the lot with 147 mn active consumers across more than 400,000 merchants in 45 countries faces a 30% drop of its valuation (from $45.6 to $31 bn) and has announced laying off 10% of its workforce
The reasons are not hard to fathom: rising global interest rates amidst record inflation, a worsening macro environment and the war in Ukraine, mounting losses combined with rising investment focus on profits versus growth and increased regulatory scrutiny.
However, what seems at first glance as a dire situation, is very likely to be the inevitable adjustment following a peak, accelerated by unexpected macro changes:
— BNPL as a whole still holds a tiny market share of global e-commerce (2.9% in 2021) and has ample potential to grow (to 5.3% in 2025 and beyond)
— Apple’s recent move has only reinforced the appeal of the model and its prospects, if done right
— BNPL is clearly transitioning from a somewhat stand-alone proposition to a mass-customization tool that can find its way to wider ecosystems’ offerings as a credible alternative in an increasingly multi-polar payments
To rephrase Mark Twain, the reports of BNPL’s death seem to be greatly exaggerated.
Opinions: Panagiotis, Graphic source: FXC Intelligence
