Consumer finance has skyrocketed over the past few years, but no impact has been felt more than that of the 2020 pandemic. COVID-19 was the catalyst for a massive transformation in consumer finance and a surge in the buy now pay later sector. BNPL has become so significant in the payments sector that Square just acquired Australian BNPL fintech Afterpay for $29 billion.

According to a survey by The Ascent, there was an almost 50% increase in BNPL usage from July 2020 to March 2021 in the U.S. It’s predicted that Buy Now Pay Later and ePOS credit spend will exceed $760 billion by 2025.

We’re now over halfway through the year so it’s time to take stock on where the buy now pay later market stands in 2021, and where it is headed for the remainder of the year and beyond. By understanding the industry developments, companies that want to provide consumer financing solutions to their customers at the point of sale can make strategic choices based on what’s happening in the market.

What is Buy Now Pay Later?

Buy now pay later (BNPL) is a point-of-sale financing product whereby consumers can get instant funding at the POS, take home the item and pay for it over time in low-interest or interest-free instalments. Pay-over-time solutions are provided by banks, lenders and fintechs at the merchant’s point of sale, whether online or in-store, and are eroding the traditional consumer finance model. BNPL has become the generic term for all types of financing that happens at checkout.

But BNPL is more than just a buzzword, it’s the new reality of consumer finance that’s here for the long haul. BNPL in the U.S. is expected to grow by 322% by 2024, according to the Jefferies Buy Now Pay Later industry report.

Top 5 BNPL shifts for 2021

While BNPL was originally the domain of fintechs such as Klarna, Affirm and Afterpay, the industry has shifted and the future of buy now pay later paints a far more diverse landscape. There have been significant changes happening in the BNPL sector, with the most impactful shifts being:

1. Industry consolidation

Industry consolidation is something that generally happens eventually in all aspects of fintech. The big players land up acquiring the smaller fintechs as they expand their financial services ecosystems and attempt to ‘ówn’ the customer experience. One example of such industry consolidation that’s just been announced in the BNPL space is Square’s acquisition of Australian BNPL fintech Afterpay. In October 2020, Alliance Data announced its acquisition of  BNPL fintech Bread. Established financial institutions and big tech companies are expected to consolidate the BNPL industry even further through acquisition activity.

2. Collaboration between banks and fintechs

While banks may have arrived later to BNPL, they’ve by no means missed the party. The pieces are in place for banks and traditional lenders to capture the market, and now is the right time to make a move. Citizens Bank partnered with Jifiti last year and successfully launched its white-labeled point-of-sale financing offering, Citizens Pay. More recently, Apple and Goldman Sachs were in the news regarding a rumored upcoming BNPL collaboration termed ‘Apple Pay Later’. Tech partnerships with banks seems to be the direction that BNPL is taking, and banks and lenders with the right pay-over-time solutions and partners in place will be poised to capitalize on this growing opportunity. 

3. Compliance with regulation 

As Europe, the U.S. and Australia voice their intentions to regulate the buy now pay later market, more and more fintechs are turning to financial best practices, such as requiring soft credit checks. While the Financial Conduct Authority (FCA) has already published its Woolard Review into BNPL, the regulation is only expected to be finalized in 2022. This will be a positive step for both merchants and consumers. Banks and financial institutions are in the optimal position as they already operate within and are compliant with a tight regulatory financial environment.

4. Expansion to new verticals

Buy now pay later providers have been creatively extending their offering to many other verticals. The latest buy now pay later vertical is professional services. Citizens Bank will be rolling out its healthcare offering, whereby customers can obtain financing for medical treatments, including for dental and orthodontic work. Consumers can also already buy now and pay later within other verticals, such as travel and home renovation.

5. Integration into the customer journey

Not a new trend in itself, but the importance of giving consumers a seamless user experience has become even more important in the buy now pay later sector. Merchants that provide BNPL through one of the many fintech apps available run the risk of diluting their brand and decreasing their customer retention. When a consumer experiences so many interruptions during the buying journey, it results in buyer confusion and a less-than-optimal customer experience.  

While merchants that offer BNPL financing through a fintech app don’t own the user experience and data, those that offer BNPL through a white-labeled platform do. Merchants and banks that want to retain customers are increasingly turning to these white-labeled solutions that are fully integrated into the customer’s journey. The point-of-sale financing then becomes a natural step – seamless within the checkout process, consistent with the overall brand experience, and giving consumers an end-to-end uninterrupted journey.

The BNPL paradigm shift

It’s important to note that these five BNPL shifts are not simply transient trends, but are actually industry paradigm shifts that are here to stay. 

As banks enhance their digital offerings, buy now pay later will become an integral part of their overall transformation strategy. Just like Big Tech companies are incorporating embedded finance into their user experience, merchants and lenders that utilize white-labeled solutions to give consumers a fully-branded, integrated financing option at their point-of-sale will reap the rewards. 


Disclaimer: The information in this article is for informational purposes only, and should not be construed or relied upon as legal advice on any subject matter. The author is not responsible for any consequences whatsoever arising from the use of such information.