4 Things About BNPL: Navigating an Increasingly Complex Landscape

It’s hard to think of a payments phenom to beat buy now, pay later (BNPL).

Initially seen as a retail novelty when it first began appearing in the U.S. with Afterpay’s 2014 debut, adoption grew slowly at first, then underwent a pandemic acceleration that’s turned BNPL into a vibrant $100 billion business worldwide, one that is attracting the biggest names in finance.

The COVID kick gave greater velocity to a payments option that was gaining serious ground by early 2020, setting up the past year of BNPL news that’s seen Square purchase Afterpay for $29 billion, and rival Klarna achieve “quadradecacorn” status on its $45 billion valuation.

With the deluge of data points swirling around the space, here are five ways to understand what’s happening with BNPL as 2022 approaches and the sector looks to its next beachhead.

1. Consumers’ Uptake of BNPL

Adoption of BNPL installments from a variety of players is at record levels to date.

According to “The Next BNPL Horizon Report,” a PYMNTS and Amazon Web Services (AWS) collaboration, “consumers in the U.S., particularly those living paycheck to paycheck, have a growing appetite for BNPL options.” The report indicated that 14% of paycheck-to-paycheck consumers not struggling with bills “made at least one product or service purchase using BNPL options in the past year, as have 11% of consumers who live paycheck to paycheck and struggle to pay their monthly expenses. Of the entire U.S. population, slightly more than 11% have made purchases using BNPL plans.”

Expressed in another way, PYMNTS finds that 29 million people in the U.S. made at least one purchase via BNPL financing in the past year.

Get the study: The Next BNPL Horizon Report

2. BNPL Buying Trends

While fashion and beauty are the categories where BNPL first made a splash, the concept is now embracing a wider variety of goods and services with the ease of installments.

The Next BNPL Horizon Report notes that 44% percent of consumers who used BNPL in the past year did so to purchase clothing or accessories, while 42% choose installment credit for buying electronics and appliances. Per the report, “31% of BNPL buyers have used BNPL to make at least one health and beauty product purchase in the past year.”

As the industry learns more about BNPL economics and repayment patterns, we see installment credit being offered on everything from luxury merchandise to high-ticket travel.

Per the report, 20% of people used BNPL this year “to help pay outstanding medical expenses, and 17% used it to pay travel and vacation expenses. Meals at expensive restaurants are the least common type of purchase made via BNPL in the U.S.; still, 13% of BNPL users (four million) paid for meals at expensive restaurants with BNPL.”

See also: 43% of US Adults Interested in BNPL for ‘Big-Ticket’ Travel, Home Repair, Medical Purchases

3. Who’s Leading?

It’s tricky figuring out who’s ahead in the BNPL space, with the competitive set taking in everyone from mono-line pure plays — Affirm, Afterpay, Klarna, Sezzle and more — to payments platforms like PayPal, to major credit card companies including Mastercard and Visa.

In recent months, PayPal reported total payments volume (TPV) of $3.5 billion since launching its Pay in 4 plan last year. PayPal acquired Japanese BNPL firm Paidy in September, and it will reportedly continue to operate as a standalone option in addition to Pay In 4.

As PYMNTS recently reported, “Affirm said that active consumers grew by 97% to 7.1 million in the latest quarter. The growth rate marked an acceleration from Affirm’s year-ago customer count of 3.1 million, which itself was up 77% over the previous fiscal year.”

At present, Klarna is far ahead, reporting first-half 2021 gross merchandise volume at $39 billion, with $20 billion of that spent in the second quarter alone.

Per recent PYMNTS reporting, “Afterpay said that BNPL spending in the U.S. has increased 230% in the past year, with a 34% increase this holiday season compared to last year. Afterpay said there has been a 30% increase year over year of people using its BNPL offerings.”

See also: 29M US Consumers Used BNPL in the Past 12 Months

4. BNPL Black Friday Totals

Surveying over 2,000 shoppers during Black Friday 2021 weekend, PYMNTS found that installments are popular, but still a long way from unseating credit, debit and PayPal.

Evaluating those findings, PYMNTS reported that “BNPL still represents a relatively small piece of the payments ‘pie.’ Only a low to mid-single-digit percentage point segment of all consumers queried said they’d used BNPL for their Black Friday purchases.”

Data shows that 5.6% of consumers used BNPL in-store during Black Friday 2021 sales — a substantial rise over 3.6% in 2020 — with BNPL garnering an 8.2% share of online activity.

See also: Black Friday Retail Results Show Buy Now, Pay Later Gaining Ground