Buy Now, Pay Later: Point of Sale Installment Loans in the US Market and International Perspectives, 4th Edition
This Buy Now, Pay Later: Point of Sale Installment Loans in the US Market and International Perspectives, 4th Edition research report offers an in-depth analysis of the opportunities and challenges faced by both existing and new players in the BNPL sector. It explores the macro and micro factors influencing transaction volumes, repayment rates, and the impact of stringent government regulations that could potentially force pure play fintech companies out of this already low-margin industry.
Furthermore, the report examines current borrowing behaviors of US consumers and the strategic positioning efforts of fintechs and traditional consumer credit entities, including banks, finance companies, credit unions, credit card issuers, and credit/debit card networks.
The report also evaluates the main business models within the industry, assessing the potential sustainability of each model as new competitors enter the market with their unique marketing strategies, merchant partnerships, and revenue models.
Additionally, the report provides data on the growth rate of the US BNPL market from 2017 to 2022, along with total and annual forecasts through 2028.
- CHAPTER 1: EXECUTIVE SUMMARY
- SCOPE & METHODOLOGY
- Scope of Report
- Report Methodology
- EXECUTIVE SUMMARY
- Status of Consumer Payments Market
- Figure 1-1. Methods of Consumer Payments, 2016-2023 (average number of total payments)
- Figure 1-2. Share of Payment Instrument Use by Age, 2023 (percent)
- Figure 1-3. Share of Cash and Credit Card Payments by Age Group, 2016-2023 (percent)
- Table 1-1. Revolving Consumer Credit Outstanding, 2020-2024 (in $ billions and % change)
- Status of BNPL in the Payments Landscape
- Robust 20% CAGR Projected for BNPL 2023– 2028
- Table 1-2. US BNPL Market: Estimated CAGR, 2017-2022 vs. 2023-2028 (percent)
- Table 1-3. US BNPL Market, 2023-2028 ($ billions and percent growth)
- Figure 1-4. “Which, if Any, of the Following BNPL Services Have You Ever Used?”, March 2024
- (percent)
- TRENDS AND OPPORTUNITIES
- Banks
- Merchants
- Fintechs
- Robust and Frictionless Digital Strategy Is Essential
- Diverse Strategies Based on Credit Segmentation
- CHAPTER 2: MARKET SIZE AND GROWTH
- CONTEXT FOR MARKET PERFORMANCE
- Table 2-1. Annual Growth of Revolving and Non-revolving Credit, 2019-2024 ($ billion)
- Retail Sales
- Household Economics Are Driving Payments Industry
- Figure 2-1. Real Median Household Income and CPI Grocery Index, 2020-2023 (percent)
- Federal Reserve’s 50 BP Interest Rate Cut Will Deliver Positive Economic Results
- Payment Preferences Reflect Household Income
- Table 2-2. Share of Payment Instrument Use by Household Income, October 2023 (percent)
- 11/1/2024 © Packaged Facts i
- More Consumers Use Card Payments Than Have a Bank Account
- Figure 2-1. Shares of US Consumers Who Adopted Payment Cards and Online Payment Accounts,
- 2016-2023
- Consumers Feeling Financially Stressed Ignore at Least One Element of Finances
- Optimizing Payment Choices
- STRATEGIC CONSIDERATIONS FOR MARKET PARTICIPANTS
- Banks
- How Can Smaller Institutions Compete?
- Card Networks Are Also Issuer Focused
- Visa as a BNPL Hub for Issuers
- New Vendors Will Enter Market to Bolster Offerings of Smaller Issuers
- Traditional Banks Must Understand New Profitability Models with BNPL
- Partnerships Magnify the Clout of Individual Banks in BNPL Finance
- Merchants
- Traditional Models for Operating in Loyalty/Rewards Programs
- Synchrony Is Pushing Hard into BNPL Finance
- Retail Credit Cards Charge Much Higher Interest Rates than BNPL
- Fintechs
- Fintechs Are Competing Directly and/or Partnering
- Smaller BNPL Finance Fintechs Could be Squeezed Out by Card Networks
- Fintechs Will Continue to Own Customers Who Don’t Use Credit Cards
- Partner with Smaller Financial Institutions
- As Fintechs Build Out Product Suites, They May Become Acquisition Targets
- Acceleration of BNPL M&A Activity Signaled by Square’s Purchase of Afterpay
- Fintech Virtual Cards Still Subject to Fraud Attempts
- ROBUST AND FRICTIONLESS DIGITAL STRATEGY IS ESSENTIAL
- Consumers Research and Shop Via Mobile, Even if They Buy In-Store
- M-commerce Leading Channel for E-commerce
- Table 2-3. Mobile is the Lead Channel for E-commerce in the US, 2021 – 2023, Q2 2024 (percent)
- Emphasis on Responsible Lending
- Fintechs and Card Issuers Using Up Lines of Credit Risk Regulatory Scrutiny
- Use of Credit Card LOCs in Regulators’ Sights and May Hurt Consumers’ Credit Scores
- BNPL Fintechs Focus on Risk Minimization
- Collateralization and Repayment Rewards Hold Down Losses
- Diverse Strategies Based on Credit Segmentation
- Credit Card Ownership Will Define Much of BNPL Finance
- Most Credit Card and Bank BNPL Loans Tap Line of Credit
- Using Up LOCs for Installment Loans Cannibalizes Credit Card Receivables
- Affirm’s Model Merits Closer Scrutiny
- ACCELERATING BNPL GROWTH
- The Morphing of Installment Loans
- ii
- CHAPTER 3: US INDUSTRY CONTEXT
- THE CONSUMER CREDIT MARKET BEFORE BNPL INSTALLMENT FINANCE
- Finance Companies and Credit Card/Store Card Lines of Credit
- Traditional Lenders Shaped Consumer Finance for Decades
- Even Among Traditional Providers, Innovation Has Been Ongoing
- Credit Cards Are Not Enough
- THE OPPORTUNITY THAT CREATED BNPL FINANCE
- BNPL Loans Turned Small Dollar Consumer Finance on Its Head
- Great Recession Hit Employment, Income, and Home Values
- Great Recession Shut Off Access to Consumer Credit as Banks Managed Risk
- Loss of Home Equity and Rising Levels of Student Debt Hurt Ability to Build Credit
- Consumers Shifted from Credit Cards to Debit Cards
- Consumers’ Receptive to New Ways to Buying and Paying for Purchases
- Changing Payment Preferences Created Opportunity for Fintechs
- New Payment Forms Benefited Merchants as Well
- THE BACKSTORY OF BNPL
- E-Commerce Growth Fueled Merchant Need for Differentiation and Competitive Advantages
- Merchants Needed New Ways to Build Loyalty and Customer Relationships
- Bill Me Later Founded to Meet that Need
- Risk Management Key to Fintech’s Success
- Earliest Merchants Experienced Huge Results with BNPL
- PayPal Credit Delivers 15% Lift to Merchants Within Three Months of Offering Service
- Retail Payments Have Become the New Alternative to Marketing Campaigns
- First Fintech BNPL Installment Lenders Targeted Merchants of Higher-Ticket Items
- Proprietary Credit Decisioning Key to Keeping Fees Low and Bypassing Credit Cards
- BNPL Financing Upstreamed in E-Commerce to Larger Market
- Consumers Wanted Installment Loans for Greater Dollar Range of Purchases
- Consumers Demanded BNPLs for Debit Card Sized Transactions
- PayPal Credit Responded to Consumers by Offering 0% Interest on $30+ Purchases
- Fintech Innovation Capitalized on Greater Consumer Demand for Personalization
- Card Products Enhanced Security and Loyalty Programs
- CHAPTER 4: BNPL FINANCING IN THE US
- INDUSTRY OUTLOOK
- Moving Forward: Robust 20% CAGR Projected for 2023-2028
- Table 4-1. US BNPL Market, CAGR 2017-2022 and Projections 2023-2028 (% CAGR)
- Table 4-2. US BNPL Market, Projections 2023-2028 ($ billions and % change)
- Rationale for BNPL Projection to 2028
- Strong Alternative to High Interest Credit Cards
- BNPL Financing Benefits from Overall Growth of Digital Commerce
- Table 4-3. E-commerce as a Percentage of Retail Sales, 2019-2024 ($ millions and percent)
- BNPL Benefits from Positive Consumer Experiences
- BNPL Benefits from Demographic Trends
- KEY GROWTH DRIVERS
- New Market Niches, New Player Strategies All Contribute to Growth
- BNPL Finance Addresses Merchant Pain Points
- Lending Model Scalability Seen in New Industry Verticals
- Consumers Think Big Tech Better than Traditional Credit Providers
- Older Consumers Open to Banking with Fintechs
- Fintechs Leverage Consumer Payments to Build Customer Relationships
- New Strategies from Traditional Financial Institutions
- Tapping BNPL Installments to Build B2B Relationships
- BNPL Shopper Rewards
- Figure 4-1. Sezzle Rewards Program
- KEY COMPETITIVE CHALLENGES
- Challenges Dictated by Player’s Role in Payment Transaction
- Traditional Lenders Don’t Offer What Millennials Want
- As Relationships Move to Fintechs, Traditionals Have Less Data to Compete
- BNPL Is Taking Billions from Banks
- Payment Friction
- Paying Users to Make BNPL More Valuable
- Regulatory Oversight: BNPL Business Models Invite Scrutiny
- Regulatory Issue: Should Fintechs Lending to Consumers be Regulated Like Other Consumer Products
- Australia Now Regulates BNPL as Consumer Credit
- BNPL Providers Have Touted Their Low Risk Lending Processes
- BNPL Credit Increases are Driven by Actual Repayment Patterns, Not One-Off Credit Pulls
- US State Financial Regulators Scrutinizing BNPL
- CFPB Review of BNPL Industry
- 2022 Report Led to New CFPB Guidance for BNPL in 2024
- Holds Placed on Credit Card Lines of Credit
- Holds on Lines of Credit Lower Credit Scores
- Competition Pressures Prices
- Uses of BNPL Installment Moved from Smaller Ticket to Larger Ticket Items
- Growth in Price Range Speaks to Growing Comfort with Product
- Zero-Interest Financing Doesn’t Feel Like Taking on Debt
- Consumer Satisfaction with BNPL is Rising
- Consumers Appreciate BNPL as Separate Line of Credit from Their Credit Cards
- Consumers Don’t Have to Touch Their Credit Card Lines of Credit
- A Single Charge Can Lower a Credit Score by Over 100 Points
- Credit Card Networks May Find Resistance to Use of Lines of Credit
- iv
- Consumers Value Ability to Spread Out Payments CHAPTER 5: THE US BNPL CUSTOMER
- CONVENIENCE DRIVES USE OF BNPL
- Table 5-1. Top Reasons for Using BNPL Loans, 2023 (percent)
- Table 5-2. Family Income, Education and Race/Ethnicity of BNPL Users, 2024 (percent)
- BNPL Awareness Tracks Increase in Usage
- Figure 5-1. BNPL Awareness and Use, 2021-2023 (percent)
- Overall Usage and Key Cohorts
- Table 5-3. How Gen Z and Millennial Shoppers Use BNPL, 2023 (percent)
- What Buy Now, Pay Later Products Are Consumers Buying?
- Average Size of BNPL Balances by Generation
- BNPL Purchase Categories
- Table 5-4. BNPL Purchasing Categories, 2023-2024 (percent)
- CHAPTER 6: THE US BNPL FINANCING MERCHANT
- SIGNIFICANT BENEFITS TO MERCHANTS
- Consumers Demanding BNPL
- Merchant Set-ups to Offer BNPL
- Shop Pay Installments Lift Order Values Up to 50%
- Best Buy Offers Installment Loans
- Each Type of Merchant Has Unique BNPL Finance Terms and Results
- Airlines
- Airlines Support BNPL
- Airlines Balk at Paying $20 Billion to Process Payments
- GDSs Connect All Travel Industry Sectors
- That Interconnectivity Could Be Gateway to Circumventing Some Card Fees
- The Complexity of Travel Industry Is a Challenge for BNPL
- New Installment Finance Fintechs Are Entering Travel Industry
- Consumers Spend $841.5 Billion on Airfare
- Affirm’s Travel Installment Financing Has Yielded Huge Results for Merchants
- Travel Site Checkout Drop-Off Rate Is 87%
- Upgrade Partners with Individual Airlines, Tour Operators and Cruise Lines
- Fintechs
- Huge Number of Merchants Makes US Prime Market for BNPL Finance
- CHAPTER 7: US DYNAMICS: TRADITIONAL PLAYERS
- US BANKS AND CARD ISSUERS JOIN BNPL FINANCE MARKET
- US Banks
- Only 5% of Banks Currently Interested in BNPL Finance
- Banks Continuing to Track BNPL Finance and May Jump in Eventually
- Bankers Fear Payments Fintechs Most
- Bank: Citizens Financial
- Bank: Wells Fargo
- Card Issuer: Citibank
- Flex is Central to Growth of Citi Retail Banking
- Citibank Offers Two Ways to Tap Citibank’s Lines of Credit: Flex Loan and Flex Pay
- Flex Loan Activity Broken Out Separately on Monthly Statements
- Flex Loan Is Alternative to Personal Loan
- Flex Pay Is Post-Purchase Installment Loan
- In Australia, Citibank’s BNPL SPOT Sold and Repositioned as NAB’s Pay Later
- Card Issuer: JPMorgan Chase
- Chase Targeting Unused Credit Lines
- My Chase Plan Taps Unused Credit Lines on its Chase Branded Cards
- My Chase Loan Taps Unused Credit Lines its Bank Customers Have with Other Issuers
- Finance Company: Synchrony Financial
- Synchrony Links Private Label Credit Cards to Installment Loans
- Retailers Customize Synchrony’s BNPL Finance Offers and Terms
- Merchants Can Offer Traditional Store Card and Virtual Card
- Synchrony Pay Later is its BNPL
- Synchrony Binds PLCC and BNPL
- CARD NETWORKS ENTER BNPL FINANCE MARKET
- Industry Context
- Visa
- Visa Betting that BNPL Is Foundational Method of Payment
- Visa Offering Issuers and Merchants Pre- and Post- Purchase BNPL Financing
- BNPL Pre-Purchase Is Product Differentiator
- Merchants Do Not Need to Align with Multiple Financing Partners
- BNPL Financing Taps Cardholder’s Credit Line
- American Express
- Pay It Plan It Addresses Cardholders’ Actual Behaviors
- Millennials Are 50% of Participants in Program
- BNPL Finance Paired with Paying for Individual Transactions and Less Revolving Credit
- Mastercard
- Mastercard Installments Gaining Momentum
- Figure 7-1. Used BNPL More This Year Than Last, 2024 (percent)
- Mastercard Issuers Can Offer BNPL at In-Store and Digital POS
- Virgin Money Slyce
- CHAPTER 8: US DYNAMICS: FINTECHS
- FINTECHS DRIVE INNOVATION IN US BNPL FINANCE
- Fintechs Targeting Consumers With/Without Credit
- Leading Fintechs in BNPL Finance with Financing Volumes and Options, and Repayment Options
- Table 8-1. Fintech Volumes, Lead Products, and Repayment Methods, Calendar Year 2022 and 2023
- (volumes in $ billions)
- vi
- KLARNA
- Largest BNPL Provider with Highly Fluctuating Market Cap
- Klarna’s US Gross Profit Jumped 93% YoY Through H1 2024
- Klarna in the US
- Generative AI Saving Money and Driving Customer Engagement
- Klarna’s Number of Active Customers is Stagnant
- Partnerships
- Rewards
- Klarna Offers Consumers Three BNPL Financing Products
- Klarna Reports that its Product Boosts Average Order Value by 68%
- In-App Browser Lets Shoppers Use Klarna Anywhere on the Internet
- PAYPAL BNPL
- PayPal Helps Merchants Grow
- Transaction Volumes and Change at the Top
- PayPal Pay Monthly
- Pay-in-4 was PayPal’s Response to Competitors and its Merchant Demands
- AFFIRM
- Affirm Offers Three BNPL Loans
- Figure 8-1. Affirm’s GMV by Product, 2023 and 2024 (percent)
- Plastic and Virtual Cards
- Merchants Using Affirm
- Affirm and Amazon
- Affirm and Walmart
- Walmart Launches Its Own BNPL, Competing Against Affirm
- Walmart May Squeeze Out Affirm
- Figure 8-2. One App
- Table 8-2. Affirm’s Key Metrics, YoY, Fiscal Year 2022-2024 ($ billions and million consumers)
- Affirm Began as a Payment Option for Subprime Consumers
- Affirm Does Not Accept Credit Cards for Debt Repayment
- Affirm, Shopify and Shop Pay
- Affirm Forecasts Positive Net Income in FY 2025
- APPLE PAY
- Apple Pay Later was Apple’s Test for BNPL
- Apple Pay Later Served as Proof of Concept
- Apple Pay’s BNPL is Global
- Apple Regulatory Scrutiny in the US
- EU Finds Apple Guilty of Blocking Competitors from Accessing its Users
- Apple Forced to Open its NFC to Competitors in the EU
- Apple Pay BNPL Offered With Klarna and Affirm
- Figure 8-3. Screenshot of Apple Pay and Klarna’s Pop-Up Screen in Apple Pay Wallet
- AFTERPAY
- Afterpay Offers a Single, No-Interest Product
- Its “Mall” of Afterpay Stores Is Available Online or Through Its App
- Afterpay Finds That 20% of BNPL Users Say It Is Their Preferred Method of Payment
- Afterpay Survey Finds BNPL is Payment Method of Choice for Unexpected Expenses
- Afterpay Staying a Step Ahead of Australian Regulators
- Late and Missed Payment Fees
- Merchants Willing to Pay a Premium for BNPL Because it Generates Outsized Profits
- Impressive Growth Metrics
- Table 8-4. Afterpay Global Growth 2020-2023 (US $ billion)
- Acquisition by Square for $29 Billion
- AMAZON
- Amazon’s BNPL Options
- Amazon’s Visa Credit Card BNPL
- Amazon’s Store Credit Card BNPL
- Loan Details
- SEZZLE
- Sezzle Building Key Bank Partnership in 2024
- Sezzle’s Spiel: 4 Interest-free Payments Over 6 Weeks
- Sezzle’s 2023 Growth
- Sezzle Product Introductions
- ZIP
- Founded in Australia, Zip Entered the US Through Acquisition
- Table 8-5. Key Metrics for Zip Co. 2020-2024
- Zip’s Revenue Model
- Stripe and Zip
- CHAPTER 9: INTERNATIONAL MARKET DYNAMICS
- GLOBAL SNAPSHOT
- Overview
- European Union
- Latin America
- China
- WESTERN EUROPE
- Consumer Credit and Payment Preferences
- BNPL Is Growing Twice as Fast as Credit Cards
- BNPL Growth Is Fueled by Consumers’ Desire for Payment Choices
- Having Payment Options Informs UK Consumers’ Choice of Merchants
- Europeans Use Wide Range of E-Commerce Payment Options
- Finally, Germany Moving to Credit Cards and BNPL Finance
- viii
- Benefits from E-Commerce and Highly Developed BNPL Tech
- European Banks and Fintechs Are Carving Out Niches in BNPL Finance
- BRAZIL
- Largest Latin American Marketplace
- Robust Installment Loan Ecosystem
- More Internet and More Smartphones
- Previously, Consumers Left Stack of Postdated Checks as Installments
- Brazilian Retailers Advertised Installment Price, Not Full Retail Price
- “Interest-Free” Pricing Masks Large Built-In Markups
- Installments Used in 80% of Brazilian E-Commerce Purchases
- Merchants Receive Partial Payment with Each Payment the Consumer Makes
- In Other Markets, Fintechs Collect Shopper Payments
- Biggest E-commerce Categories Are Electronics and Travel
- Daunting Import Tariffs Act to Depress E-Commerce Volumes
- MEXICO
- Mexico’s E-Commerce Reaches $38.1 Billion in 2024
- Debit Cards Are Not Authorized for Digital Commerce
- Country’s Largest C-Store Lets Consumers Buy Online and Pay Cash In-Store
- Installment Finance Was Originally Used by Large Ticket Merchants
- Banks Copied Success with Installment Payments for Credit Cards
- CHINA
- Chinese Millennials Are Online, Shopping, and Not Using Network Branded Credit Cards
- Tighter Regulations Temper Chinese BNPL
- Tencent’s BNPL is Fen Fu
- Tencent’s Fen Fu Monetizes BNPL with Late Fees and Service Fees
- Alibaba
- Alipay (subsidiary of Ant Financial, Mostly Owned by Alibaba) Is Developing Installment Finance with
- Huabei
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