BNPL Offers Big Potential for Market Share But Also Flashes Caution Signs for the Unwary, a Panel Says

The rapidly unfolding buy now, pay later business holds huge potential for point-of-sale lenders but flashes caution signs for players that jump in without doing their homework, a panel of experts said Tuesday at the Money 20/20 exposition in Las Vegas.

The BNPL product, which generally allows shoppers to pay for goods in four equal installments over a six-week period at no interest, offers huge potential to grab market share, even though it has attracted a bevy of providers in the past two years or so, the panelists said. Rick Cunningham, senior vice president for strategy and business development at Alliance Data Systems Corp., estimated the market potential at $100 billion, with just $4 billion to $6 billion having been lent so far.

“Move with speed and purpose,” Cunningham advised potential market entrants. He pointed out that established payments providers and financial-service companies are entering the burgeoning market through acquisitions. One recent transaction saw the big fintech Square Inc. agree in August to acquire BNPL provider Afterpay Ltd. for $29 billion. The deal is expected to close early next year.

Entrants aside, established providers are beefing up operations with BNPL acquisitions of their own. Alliance Data in December closed on its $450-million cash-and-stock deal for Lon Inc., known as Bread. And BNPL giant Affirm Inc. at the same time clinched its $265-million cash-and-equity deal for Toronto-based PayBright.

Part of BNPL’s attraction for providers is that the product doesn’t compete with the massive credit card industry, the panel said. “We see credit cards as a very different [consumer] endpoint,” said Chris Bixby, vice president of growth for Sezzle Inc., which on Monday announced it would offer Bread’s services to its merchants. “There’s been consumers left behind by traditional forms of credit. That’s where BNPL plays a role,” Bixby added.

But there are shadows beginning to form over the BNPL landscape, the panel warned. As one example, Cunningham said “credit stacking,” in which consumers add BNPL credit on top of credit card debt, is becoming a “concern” in the industry. The practice is possible, he said, because BNPL activity is not typically reported to credit bureaus. “This is a rapidly evolving space. How do you do underwriting?” he asked.

The industry will have to formulate answers soon, speakers said. Both Cunningham and panel moderator John Zanzarella, vice president of sales at PerformLine Inc., warned that “regulation is coming” in BNPL Morristown, N.J.-based PeformLine is a provider of regtech, or technology that helps companies with regulatory compliance.