FinTech Tracker® Series Report

BNPL Defies the Economic Odds Through Innovation and Partnerships

December 2023

The year has been dominated by one macroeconomic challenge after another. Did the BNPL industry manage to stay afloat in Q3 2023?

PYMNTS

Overshadowed by economic uncertainty, BNPL companies continued to rely on their core technologies not only to sustain profitability but also to increase it in Q3 2023, reinforcing the criticality of the industry’s modern payments infrastructure in ensuring BNPL’s economic resilience.
Leveraging the high interest rate and inflation landscape that continued into Q3 2023, the BNPL industry invested substantial effort in enhancing and diversifying service offerings — a maneuver that helped to reduce consumer financial pain and drive profitability.
Strategic partnerships have emerged as a key trend in Q3 2023, representing a crucial strategy in BNPL’s toolkit for achieving profitability. Using these partnerships to tap into new markets and expand services, the industry has managed to effectively avoid economic fallout and sustain robust profits.


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    High interest rates and inflation have been a dark cloud hanging over the economy throughout 2023. Still, the buy now, pay later (BNPL) industry has demonstrated remarkable resilience through Q3 2023. BNPL has leaned heavily on its core payments technology of pay-in-four — and these services have not faltered. In the process, the industry has seen traditional financial institutions (FIs) and lines of credit take a beating as consumers shy away from the increased expense of using these resources. However, BNPL has been far from a complacent observer. The industry has redoubled its efforts to expand its portfolio of features and to increase its market share while carving out new partnerships that supercharge these initiatives — a critical synergy for ensuring the industry’s notable success in an otherwise challenging economic climate.

    BNPL’s Core Technologies Ensure the Sector Thrives

    Overshadowed by economic uncertainty, BNPL companies continued to rely on their core technologies not only to sustain profitability but also to increase it in Q3 2023, reinforcing the criticality of the industry’s modern payments infrastructure in ensuring BNPL’s economic resilience.

    33%

    Q3 2023 year-over-year surge in Sezzle’s in-app marketplace volume,
    affirming the resilience of its technology-driven payments solutions

    Sezzle maintains Q3 2023 profitability at the helm of a BNPL technology stack.

    Sezzle’s technology-driven product suite has maintained consumer demand in 2023. Strong unit economics also contributed to the company’s fifth consecutive profitable quarter. Sezzle’s in-app marketplace volume increased by 33% year over year, and Sezzle Up credit reporting saw 40% year-over-year growth. Total income rose by more than 34% year over year — results that validate the company’s success at leveraging its payments technologies for continued profitability.

    AI-driven development enhances Klarna’s profitability.

    Klarna’s Q3 2023 results demonstrate the positive impact of the Swedish company’s technology strategy on profitability. Leveraging AI in product development, Klarna showcased significant improvements in credit loss performance and operating profit, achieving a 30% year-over-year revenue increase to 6 billion Swedish krona (about $579 million). These milestones underscore the ways BNPL companies are successfully relying on their payments technologies to maintain profitability — and in Klarna’s case, while also advancing toward environmentally sound operations.

    For Affirm, technology investments yield strong financial gains.

    Affirm’s continued investment in technology and analytics in Q3 2023 significantly improved its efforts to become profitable, with revenue growing 7% year over year to $381 million. The third quarter also saw the company achieve a 26% increase in active consumers and a notable improvement in credit performance, underlining the role of Affirm’s BNPL technologies in maintaining forward momentum. It’s worth noting that this approach mirrors the successes achieved by Sezzle and Klarna.

    BNPL Drives Profitability With Feature Diversification

    Leveraging the high interest rate and inflation landscape that continued into Q3 2023, the BNPL industry invested substantial effort in enhancing and diversifying service offerings — a maneuver that helped to reduce consumer financial pain and drive profitability.

    Klarna

    is innovating with Ads Manager and Creator Shops,
    opening new revenue channels for retailers and creators.

    Klarna diversifies service offerings with Creator Shops and Ads Manager.

    Klarna’s recent introduction of Creator Shops and Ads Manager exemplifies enhancing and diversifying service offerings. These features establish new revenue channels for retailers and creators by connecting them with untapped market segments and facilitating deeper customer engagement — a product strategy aimed at bolstering resilience and a competitive edge.

    Afterpay makes a move to personalize shopping.

    Afterpay is jumping into the targeted advertising business with the goal of enhancing the shopping experience through personalized content. This feature strategy aims to deepen consumer loyalty — a vital ingredient for boosting customer lifetime value.

    U.S. Bank enters the BNPL market.

    U.S. Bank’s recent launch of Avvance through Elavon underscores a well-timed move to diversify its consumer lending options in the midst of holiday spending and high interest rates weighing on consumers’ outlook. Although adopting BNPL solutions is somewhat of an atypical move for a major FI, this strategy ensures the mega bank addresses evolving consumer credit preferences, broadens its market reach and improves overall customer satisfaction.

    Partnerships Help BNPL Navigate Economic Headwinds

    Strategic partnerships have emerged as a key trend in Q3 2023, representing a crucial strategy in BNPL’s toolkit for achieving profitability. Using these partnerships to tap into new markets and expand services, the industry has managed to effectively avoid economic fallout and sustain robust profits.

    Afterpay and Nift

    are partnering to roll out a rewards program
    that leverages the customer engagement journey.

    Nexi and Compass team up to make BNPL more available at the point of sale.

    Nexi and Compass have inked a partnership to integrate Compass’ BNPL services into Nexi’s payment terminals — a pragmatic approach for expanding acceptance of diverse payment methods directly at the point of purchase in physical retail locations. This partnership aligns with current industry moves toward more integrated payment solutions, reflecting a strategic counterplay to high interest rates and friction at the checkout.

    Sezzle and JustiFi join hands to diversify service offerings.

    The recently announced partnership between Sezzle and JustiFi highlights forward-looking strategy to expand service offerings and market presence. JustiFi’s platform will integrate Sezzle’s BNPL services to improve customer convenience and accessibility — critical for capturing new consumer segments and enhancing the purchase journey.

    Afterpay’s strategic partnership with Nift aims to reward deeper engagement.

    Afterpay’s collaboration with Nift Networks establishes an innovative rewards program that aims to better leverage the customer engagement journey. The goal here is to offer value-added services that drive more pronounced customer loyalty and repeat business. The novel program accomplishes this by using Nift’s AI technology to match Afterpay’s users with personalized gift options from thousands of brands already on the Nift Network. The novelty is that it goes beyond traditional rewards programs, instead providing personalized experiences that encourage experimentation and repeated engagement.

    Strategic Moves to Steer BNPL Through Market Volatility

    In a year when traditional financial models have been forced to confront structural challenges, the BNPL model has drawn from its payments technologies and agile product strategies not only to weather the storm of high interest rates and inflation but also to chart a definitive course toward continued growth.

    However, maintaining this momentum will require even more.

    PYMNTS Intelligence prescribes the following actionable roadmap:

    • Offer BNPL services as a solution to credit anxiety: Develop consumer-facing marketing campaigns that position BNPL as a financially savvy choice. Highlight stories of the ways BNPL can ease budget management during inflationary periods and focus on the relief it brings to users contending with high credit costs.
    • Optimize digital wallet integration: Strengthen partnerships with leading digital wallet providers to create more intuitive BNPL experiences. Prioritize user-friendly features such as one-click activation and real-time spending tracking that set your services apart in an increasingly crowded market.
    • Implement AI features: Embrace AI — yesterday. Integrate AI to offer predictive spending insights and proactive budgeting advice. This positions your services as both a payment option and a financial management tool, better aligning with evolving consumer expectations for smarter, data-driven services.
    • Adopt data-based customization and gamification: Personalize user experiences by using data to tailor BNPL offerings — but don’t stop there. Introduce reward systems for responsible spending patterns, ethically using gamification to foster a sense of achievement and loyalty, thus deepening user engagement with your platform.
    • Leverage social commerce: Focus on embedding BNPL seamlessly into social commerce experiences. Collaborate with influencers and brands to demonstrate the ease and convenience of using BNPL throughout the social media shopping journey, unlocking lucrative tech-savvy demographic groups along the way.

    BNPL’s journey throughout the 2023 economic rodeo has gone far to punctuate its potential to be innovative and fiscally resilient. By exploring this roadmap, the industry will be even better positioned to turn economic challenges into opportunities for growth.

    About

    Sezzle is a payments company on a mission to financially empower the next generation. Sezzle’s payment platform increases purchasing power for millions of consumers by offering interest-free installment plans at online stores and in-store locations. When consumers apply, approval is instant, and their credit scores are not impacted unless the consumer elects to opt in to Sezzle’s credit-building feature, Sezzle Up. This increase in purchasing power for consumers leads to increased sales and basket sizes for the more than 41,000 active merchants that offer Sezzle.
    As the only B Corp in FinTech, Sezzle proves that all industries — even payments — can do their part to provide solutions and make a positive impact today and into the future. For more information visit Sezzle.com.

    Ingo

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Randall Brown


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