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For the past two years, few fintech trends have been watched as closely as “Buy Now, Pay Later" (BNPL). At the height of the COVID-19 pandemic, BNPL skyrocketed the valuation of leading providers like Klarna, Afterpay, and Affirm and, despite a few bumps in the road, is expanding at a rapid pace.
Given the increase of digital transactions in the early stages of the pandemic, some have suggested that BNPL’s shelf life would expire in a post-pandemic world. But while pandemic-related restrictions are lifting around the world, BNPL is continuing to evolve. In this blog, we’ll take a closer look at the international expansion of BNPL, how countries and businesses hope to benefit from increased adoption, and what to expect as these services evolve into the future.
If you follow our blog, you know we’ve covered the history of BNPL and the recent obstacles facing BNPL providers. You also probably know that BNPL didn’t simply materialize out of the pandemic. Point-of-sale (POS) installment loan services had already existed for some time, and while they experienced modest growth and adoption before the beginning of 2020, they were much less well known and rarely utilized by the average consumer. But since BNPL’s emergence, according to Straits Research, the international BNPL market rode its newfound popularity to a valuation of more than $130 billion in 2021, and is now on track to be worth around $3.7 trillion by 2030.
North American-based providers like PayPal and Amazon have already made BNPL options available overseas in both Europe and Asia, and regulators in the U.K. have wasted no time proposing new protections in response to an explosion in the installment-plan model's popularity.
Meanwhile, new players seem to be announcing their own BNPL offerings every other day, including a particularly controversial integration by Apple, and a “white label” solution for online merchants and marketplaces in Germany being introduced by Deutsche Bank. So the question emerges: with global markets facing no shortage of increasingly unpredictable economic challenges, are these large and respected institutions acting too hastily, or is BNPL actually becoming a viable mainstream alternative to traditional credit?
When BNPL first started garnering attention, it was viewed as a new way for consumers to purchase higher ticket items at a lower upfront cost. By providing the option to break up large purchases into four or more smaller payments, items that once felt like luxuries suddenly seemed affordable to the average consumer.
But while BNPL may make it easier to buy (and sell) expensive products, its other use cases could better establish BNPL as a disruptor of the international credit and payments landscape. The ambitions of large players in the BNPL space extend far beyond e-commerce and into areas like healthcare and B2B expense management.
For example, BNPL healthcare startup Walnut secured $110 million in a Series A funding round, its point-of-sale technology aiming to help people finance medical procedures and doctor visits. The platform has already been integrated into the checkout process of more than 50 healthcare specialty providers and could be a game changer for those who have difficulty accessing traditional credit.
In the B2B space, businesses are increasingly using BNPL to increase cash flow, expedite approvals, and provide clients with a more flexible alternative to traditional credit when making corporate purchases. This could be particularly transformative for small and medium-sized organizations that might otherwise need to take out a large loan to meet a critical objective, or worse, delay a growth initiative due to lack of capital.
Again, while the international BNPL industry is undeniably on a path of expansion, providers won’t recapture their pandemic-era growth without first addressing some considerable challenges. Primarily, most countries have yet to implement a comprehensive regulatory framework by which BNPL businesses must operate, and it will be difficult to know exactly where the industry is headed until more clarity emerges.
Regulations are in the works, but they aren’t coming as fast as many would hope. In the U.S., the Consumer Financial Protection Bureau (CFPB) has been hinting at regulatory action since its announcement of an inquiry into BNPL late last year. And while many believe the CFPB will ultimately standardize credit reporting data in the space, no decision has been announced, and few expect to learn anything new before the end of 2022. Regulators in the U.K. and EU plan to implement more rules and require additional transparency from providers, but both haven’t yet finalized the legislation.
We look forward to seeing how further regulations guide further innovations in this space. Tune in to our blog for more updates on everything fintech!