Buy Now Pay Later (BNPL), a form of short-term credit, has been very strong over the past few years with increasing demand from customers who have come to want instant gratification and accelerated purchasing options. Gone are the days when people save to purchase items, now it is the norm to have a car on hire purchase, a kitchen on finance, and to spread the cost of everyday items with BNPL.
Recent research from Precedence Research highlighted this trend: “The BNPL space is experiencing accelerated growth. In 2020, the BNPL market was valued at $87.2bn. This grew by around 43% to $125.09bn in 2021. And reached an estimated $179.5bn in 2022.”
And post-Christmas research from Equifax found that one in three (34%) consumers in the UK have now used BNPL services, up from 26% in November 2021, suggesting that 4.1 million people chose to use the payment method for the first time in 2022.
However, some things have changed in 2022: war and inflation drove up central bank rates and BNPL players’ valuations have been affected accordingly. With a loss of access to very cheap capital, many BNPL key performance indicators, such as net interest margin, defaults, and losses, just do not look as good any more. But for now, a corporate looking to boost sales with the support of BNPL or other lending solutions could be at a competitive advantage as customers are short on liquidity in an economic slow-down phase.
What will BNPL do in 2023? Embedded finance service provider AAZZUR believes that lending, especially in the B2B space, is still very much optimised and SMEs continue to have an especially difficult time gaining access to capital. For consumer BNPL, there will be less access and rationalisation.
Hence here are some predictions for BNPL:
Because of the increased use of BNPL in businesses, there will be a drive to increase regulation through government plans, which will, in turn, protect millions of users
With all forecasts indicating continued growth, this trend presents numerous opportunities for businesses to attract new customers, increase sales, and build brand loyalty.
As a result, treasurers opting to use BNPL could benefit their business and meet the changing needs of customers.
So, overall, further digitisation will drive lending to where it needs to be; data will help businesses make better decisions, and the business model of BNPL will evolve with risk allocation more dynamic and spread among participants.
BNPL may have a more difficult time in 2023, but lending and embedded finance will continue to optimise the businesses of the future. A slight positive trend overall.
Philipp Buschmann is CEO and co-founder of AAZZUR, an embedded finance service provider