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Buy-now-pay-later (BNPL) is a payment concept that allows consumers to make purchases upfront and defer the payment over a specified period of time. It offers an alternative to traditional credit cards or immediate cash payments by breaking the total cost into smaller, interest-free installments. Typically, BNPL services require users to provide minimal or no upfront payment, and the remaining balance is paid off in equal installments over several weeks or months.
The BNPL concept has gained significant popularity in recent years, driven by the convenience it offers to consumers and the potential for increased sales for merchants. It appeals to shoppers who may need more immediate access to funds or prefer to spread out their payments. Additionally, BNPL services often provide a simplified and seamless checkout experience, making it an attractive option for online and in-store purchases.
Several trends have emerged in the BNPL industry:
Market Expansion: BNPL services have expanded globally, with numerous providers entering the market to meet the growing demand. Companies like Klarna, Afterpay, PayPal Credit, and Affirm are prominent players, offering BNPL options across various industries and markets.
Integration with Payment Platforms: BNPL services are increasingly integrated into popular payment platforms and digital wallets. This allows users to access BNPL options directly within their preferred payment methods, simplifying checkout and enhancing user convenience.
B2B BNPL Solutions: While initially focused on consumer purchases, BNPL has extended to business-to-business (B2B) transactions. This trend enables businesses to leverage BNPL services for their procurement needs, providing flexibility in managing cash flow and making larger purchases more accessible.
Regulation and Consumer Protection: As the popularity of BNPL grows, regulatory bodies have started implementing measures to protect consumers. These regulations aim to ensure fee transparency, prevent predatory lending practices, and address overspending and debt accumulation concerns.
Competitive Landscape: With the increasing number of BNPL providers, competition within the industry has intensified. Companies differentiate themselves by offering unique features, partnerships with retailers, rewards programs, or targeting specific consumer segments. This competition drives innovation and fosters the development of new services and features.
Ethical Considerations: The rise of BNPL has sparked discussions about responsible lending and consumer financial well-being. Companies are increasingly expected to promote responsible spending habits, educate users about potential risks, and provide transparent terms and conditions to protect consumers from excessive debt.
Klarna was a pioneer in the buy-now-pay-later (BNPL) industry, and now there are numerous options available worldwide, such as PayPal Credit and the recently launched Apple Pay Later. The demand for BNPL services is increasing, leading to the emergence of new providers catering to both consumers and businesses.
A recent survey by Ecommpay revealed that one-third of British consumers (33%) are likely to abandon their online purchases if a BNPL option is unavailable. The Centre for Financial Capability also found a surge in BNPL demand across all age groups in the UK, driven by the cost-of-living crisis.
Considering the rising demand for BNPL, it was only a matter of time before Apple entered this market. Apple Pay Later has been introduced as a pre-release version for select users in the US. These users can manage and repay their four-payment, six-week loans through Apple Wallet. Although currently limited to a select group, Apple plans to make Pay Later available to eligible users worldwide in the coming months.
Despite similarities between Apple and PayPal's BNPL offerings, both companies compete for individual users within their respective services. As new BNPL regulations aim to protect consumers in the UK, research suggests that 37% of consumers are more inclined to use this payment option. This fact raises the question of which company will secure the most consumer loyalty in 2023.
The scoring systems of Apple and PayPal, including their complexity and accessibility for the average consumer, will play a crucial role in attracting users in future years. According to Statista, Apple Pay is projected to generate $4 billion in revenue in 2023, a significant increase from less than $1 billion in 2019. The rollout of Pay Later is expected to contribute to this growth. In comparison, with its Pay in 4 and Pay in 3 options, it recorded total sales of $27.5 billion last year. However, Statista also indicates that the number of Apple Pay users is twice that of PayPal (68% vs. 34%).
Since Apple's initial loan limit is similar to PayPal's, both companies will compete directly for a similar market segment, while larger purchases (up to $25,000) are left to companies like Affirm. Nevertheless, PayPal welcomes the addition of Apple Pay Later to its checkout options alongside its own BNPL credit offering, as it prioritizes user choice.
Unlike Klarna, which introduced late payment fees recently, Apple's BNPL launch includes a 0% interest rate. The absence of fees for Apple's BNPL may allow Apple to capture a portion of Klarna's market share when it launches across Europe in the upcoming months.
Considering the ethical aspect of BNPL, it is essential to protect consumers when acquiring new users. A quarter of UK consumers are more likely to use BNPL for purchases in 2023 than their 2022 spending habits (25%). Therefore, Apple's marketing team must address responsible lending and borrowing, communicate the benefits and risks, be transparent about fees, safeguard privacy, and share payment history with credit agencies. Data indicates that 58% of British consumers feel that BNPL encourages them to overspend, necessitating a change in how lenders approach this conversation.
Overall, BNPL has revolutionized consumer purchases by providing flexibility and convenience. While the concept continues to evolve, its popularity is expected to persist as consumers seek alternative payment options and merchants strive to enhance customer experience and boost sales.
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