Fast-Growing BNPL Will Capture ‘Additional Share,’ Including Offline Spend, An Analyst Says

The buy now, pay later concept is nothing new, but it took on momentum during the pandemic and may now undergo unstoppable growth in the next few years, according to RBC equity analyst Dan Perlin, who analyzed data on BNPL contained in the 2022 Global Payments Report recently released by FIS Inc.’s Worldpay unit. “We think the data broadly supports a view for BNPL’s ability to capture additional share, not only as a [percentage] of [e-commerce] spend, but also potentially offline as well,” Perlin says in an RBC report released this week.

BNPL accounted for some 2.9% of worldwide consumer e-commerce spending in 2021, up from 2.1% in 2020 and 1.6% in 2019, Perlin says, based on information in the Worldpay report. The compound annual growth rate in BNPL spend through 2025 is expected to be 30%, according to data in the Worldpay report. “We believe this data reflects strong momentum in BNPL’s global adoption and demonstrates the secular growth tailwinds for this payment method,” Perlin says.

The United States, indeed, has seen the fastest growth in BNPL consumer spending online among the countries analyzed, at 155% year-over-year through 2021, according to the report and RBC’s analysis.

RBC’s analysis indicates BNPL’s fast growth stems from wider recognition of its advantages for both consumers and merchants. “We think BNPL as a payment method helps to solve for a number of consumers’ pain points,” Perlin says. These include “affordability for larger items without the need to revolve, access to credit for those consumers who have an aversion to credit cards,” he adds. In particular, BNPL allows merchants to attract more younger consumers who may not want or qualify for a credit card, he says.

E-commerce merchants, meanwhile, benefit from “incremental sales, higher average baskets, [and] access to deeper customer insights,” Perlin adds.

The RBC analysis indicates two groups of companies can benefit from the momentum behind BNPL. The first group, which benefit directly because they offer BNPL services to merchants, include companies such as Affirm, PayPal, and Block. Affirm has “strong hold on the U.S. market,” Perlin says, because of alliances with Amazon and Target. PayPal Holdings Inc. offers a Pay in 4 BNPL service and recently acquired Paidy, which injects PayPal into e-commerce in Japan. Block, meanwhile, closed earlier this year on a $29 billion acquisition of BNPL provider Afterpay Ltd.

Indirect beneficiaries, the RBC report says, include Mastercard and Visa, both of which have introduced application programming interfaces for installment-payment programs. These APIs can be leveraged by acquirers to create in-house BNPL programs for merchants.

BNPL’s fast growth, however, has attracted the attention of regulators. In December, the Consumer Financial Protection Bureau issued a demand letter to Affirm and four other BNPL providers—Afterpay, Klarna AB, PayPal, and Zip Co.—seeking information about the potential for overspending by consumers, among other concerns. Responses were due March 1.