How Buy Now, Pay Later Became a Fintech Fixture

It goes without saying that one of the more notable trends to emerge from the payments space in recent years is Buy Now, Pay Later (BNPL), which began gaining some traction in light of the global financial crisis. 

Fast forward more than a decade and this alternative payment method (APM) has revolutionised the e-commerce industry, allowing shoppers to make purchases without having to pay the full amount up front – arguably making products more affordable. 

Interest surged during the COVID-19 pandemic as consumers resorted to online shopping and opted to spread payments due to associated economic hardship.

“The growth of BNPL is closely tied to the rise of fintech, where technology-driven platforms are changing how financial services work,” comments Marc Maxfield, a Principal Consultant specialising in financial services at PA Consulting. 

“These platforms use technology to quickly assess credit, making it possible for more people with limited credit histories or lower credit scores to access credit.”

Many would contend, however, that BNPL brings with it a host of hidden dangers, encouraging shoppers to abuse the schemes on offer and ultimately causing them to slip into a spiral of debt. 

What most fintech players, as well as advocates and critics of BNPL, seem to agree on is that the general standard of customer protection must be raised and regulation cannot be neglected. 

The rapid rise of BNPL

BNPL has been catapulted into the mainstream at seemingly breakneck speed, to the extent that it has become a first port of call for a significant proportion of online shoppers. 

The data does a lot of the talking on this front. According to Finder’s latest research, half of UK adults had used BNPL services by the start of 2024, up from 36% a year prior. Stateside, Juniper Research says the number of BNPL users is anticipated to exceed 94 million by the end of 2024, an increase of more than 40 million people in the space of three years. 

Globally, the figure is forecast to hit 900 million by 2027. 

To those on the outside, the rise of this game-changing payment method appears relatively staggering, but those in the industry are, understandably, less shocked. 

“I’m not surprised by the rapid rise of BNPL because the traditional credit industry is designed to serve banks and credit card providers – at the expense of consumers,” says Richard Bayer, UK Country Manager at Clearpay, a specialist in BNPL solutions whose technology is used by many of the world’s biggest retailers. 

“In complete contrast, Clearpay was created with economic empowerment in mind, allowing people to take control of their finances, with access to flexible payments that don’t charge  interest.”

Perhaps more surprising is BNPL’s increasing use across all age groups, with a report produced by Clearpay and Oxford Economics finding it is no longer just being adopted by Gen Z and Millennials. 

“Boomers are the fastest-growing user group across the industry,” adds Bayer, “and we expect this growth to continue in 2024 as more people adopt flexible payments.”

Carl Astvik, a fintech expert at PA Consulting, believes the flexibility and benefits offered by BNPL services means its popularity was inevitable. He is, nonetheless, astonished by the pace of its normalisation. 

“Broad adoption of BNPL by consumers and sellers, coupled with the entry of new players into the market, is intensifying the competition,” he adds. “It's noteworthy that even large firms have joined the BNPL trend, further emphasising its significance in the financial landscape. 

“This participation by major players underscores the widespread impact and acceptance of BNPL, setting its position as a transformative force in the way transactions and credit are approached.”

BNPL: Benefits and risks

BNPL, of course, has its upsides for consumers and businesses alike. 

Convenience, almost-instant approval and an easy-to-understand repayment structure are giving buyers increased choice and flexibility when it comes to spending their money, resulting in a feeling of heightened financial control.

This potential to attract a larger pool of customers is good news for merchants, says Puneet Chhahira, Head of Product Management and Marketing at Infosys Finacle.

“BNPL has proven to be a catalyst for growth and profitability,” he explains. “It has facilitated rapid user expansion and increased transaction volumes, creating new revenue streams for BNPL providers, banks and their partnered merchants.

“Also, BNPL's data collection on consumer spending habits offers valuable insights that can be leveraged to develop more personalised financial products and services.”

Chhahira urges caution, however, when considering the merits of BNPL, and he isn’t alone.

Irene Skrynova, Chief Customer Officer at Unlimit—a leader in the field of borderless payments—is clear in her belief that it poses risks for all parties involved.

“Consumers need to proactively manage these debts to avoid the additional fees associated with late repayments,” she says. “Objectively, this hasn’t always been communicated clearly by the industry. 

“As there is a delay in payments being received by businesses, merchants accepting BNPL require effective cash flow forecasting and management, particularly if they become reliant on BNPL for their business revenue.” 

High time for regulation

These aforementioned pros and cons of BNPL technology raise inevitable questions about regulation. 

Tighter rules have been on the cards for a while, with regulatory bodies like the UK’s Financial Conduct Authority and the US’ Consumer Financial Protection Bureau (CFPB) working alongside providers to promote a culture of transparency where consumer protection is prioritised. 

“Not every BNPL provider offers Clearpay’s gold standard of customer protection, and that’s why proportionate regulation is needed to minimise consumer risk,” adds Bayer. 

“There’s also some misuse of the term ‘Buy Now, Pay Later’, with some providers offering interest-bearing products and labelling them as BNPL. One of the standout points about BNPL should be that it is a no-interest offering.”

“It’s critical that industry and government work together to ensure that a gold standard of customer protection is delivered. Clearpay has always advocated that the best regulation will both safeguard consumers and facilitate innovation.”

Echoing this, Skrynova emphasises the need for regulators to approach this issue in such a way that consumer protection is not achieved at the expense of creativity.

Predicting what’s to come in 2024, she continues: “The UK and Singapore will continue what Australia started last year by acting on their consultations and regulating BNPL providers. The goal of this is to protect the consumers most likely to be vulnerable if they misuse BNPL.

“Increased regulation will be good for the market. It’s a sign of market maturity; making sure consumers are sufficiently protected builds trust and ensures everyone can benefit.” 

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