Buy Now Pay Later (BNPL) is currently surging in popularity among consumers and its growth shows no signs of slowing down. Fintech lenders such as Klarna and Afterpay have recorded a record amount of new users in recent times. Klarna, one of the world’s largest BNPL companies, added over 1 million users just in the summer of 2020. Similarly, Afterpay recorded a rise of 219% in new users in mid-2020 compared to the same point in 2019.
But what are the reasons behind this growth and why is BNPL becoming such a hot trend? In this article, we’re going to discuss just that.
What is BNPL?
BNPL is exactly what it says on the tin. Consumers who wish to purchase something but don’t want to pay instantly can use a BNPL scheme to pay the money back later. The timeframe consumers need to pay back varies, but it is usually between 30 days to 12 months. These schemes are very attractive to consumers as they are interest and fee-free if you pay back the BNPL provider in the agreed timeframe.
How Does It Make Money?
If consumers don’t get charged interest or fees (if they don’t miss payments), how do BNPL providers make money? Good question. BNPL providers make the majority of their revenue from charging fees to major online retailers. Retailers are incentivised to use BNPL providers because they can help increase their sales and average order value. In fact, Klarna claims that they help increase business sales by 20% and increase their average order value by 45%.
Why Is BNPL So Popular?
BNBL providers are becoming very popular because they help provide a superior shopping experience for consumers. People want payment options that offer convenience and flexibility, and BNPL providers deliver just that.
They also make a great alternative to credit cards. People who use BNPL providers over credit cards don’t have to deal with the hassle of opening an account and can save themselves money in the process.
The benefits BNPL offers is why these services are in such high demand and why companies like Klarna see such high growth. Klarna now has close to 11 million active users and boasts a customer satisfaction score of 86%. It’s clear that BNPL services will only continue to rise in popularity.
The Future of BNPL
The future looks good for BNPL providers and the sellers who use them. BNPL is a relatively new service, and there is much more room for growth. Many retailers still don’t offer BNPL, but we can expect more merchants to begin adding it as a payment option as the demand grows.
The recent success BNPL providers have experienced will undoubtedly have caught the eye of other FinTechs and financial institutions. As time goes on, we can expect this space to become more competitive due to the sector’s impressive numbers and tremendous opportunities.
Can BNPL become as prevalent as Mastercard or Visa? Maybe. Only time will tell. However, the future is indeed very bright.