While the modern, tech-driven version of Buy Now, Pay Later (BNPL) has really taken off in the last decade or so, the concept itself is now new. Department stores and consumer catalogue companies such as Sears and Roebuck started offering instalment plans, where customers could get the goods immediately but pay for them over time. Today, BNPL offers consumers and businesses flexible payment options and is expected to continue its growth trajectory. However, increased regulation, competition, and the need for responsible lending practices are shaping the future of the industry.  

Despite some economic headwinds, the BNPL market is expected to continue its strong growth trajectory. This is fuelled by increasing e-commerce adoption around the world, consumer demand for flexible payment options, and the appeal of BNPL to younger demographics, such as the millennials and Gen Z. As for the leading BNPL players, the list is long, almost a full 26 letter A-to-Z alphabet of players, from Affirm to Zip. Too many to list them all here.    

BNPL has reshaped the way consumers shop, making high-ticket items more accessible to a larger consumer segment. But without proper regulation and responsible use, it’s a slippery slope that could lead to mounting debt for consumers and financial instability for providers. So, is BNPL the perfect balance between convenience and caution, or are we plunging into another financial crisis? BNPL is here to stay, and we have seen that it has been the fastest growing alternative payment method (alternative to a credit card) in the last five years. The global BNPL market size to exceed USD 160.7 Billion by 2032 according to Fintech Futures.  

There are upsides of BNPL for both shoppers and merchants. The increased prominence of millennials in the digital economy and eCommerce growth during the pandemic has accelerated BNPL uptake. The main advantage for the shopper is the ability to take items home right away and pay later. The option to pay no interest if payments are met on time or the entire amount is paid off by the time the loan period ends has unquestionably appealed to consumers wishing to spread their payments over a few months. BNPL is readily available in-store when it has been solely an online payment method. Consumers who may be on a low income or do not have a credit card will also find BNPL an appealing option.

It's important to note that the regulatory landscape for BNPL is still evolving in many countries around the world. As the industry continues to grow and innovate, further regulations and guidance may be introduced to ensure consumer protection and promote a healthy credit market. In Australia, for example, recently passed the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024. This legislation amends the National Consumer Credit Protection Act 2009 to bring BNPL products under the same regulatory framework as other credit products.

In the European Union, the European Consumer Credit Directive (2023/2225/EU) is a significant step towards modernizing and strengthening consumer protection in the credit market. It addresses the challenges posed by new credit products and digital finance, while promoting responsible lending and borrowing practices. The Directive is likely to have a major impact on the way credit is offered and used in the EU.  

The Consumer Financial Protection Bureau (CFPB) is the primary regulator overseeing BNPL in the US. The CFPB has issued guidance to BNPL providers, emphasizing the need for clear disclosures, responsible lending practices, and fair debt collection practices. In addition to federal efforts, some specific US states are also considering or have implemented their own regulations on BNPL, focusing on licensing requirements and consumer protection. California has been a frontrunner in BNPL regulation. They have already incorporated BNPL products under their California Financing Law (CFL). New York and Massachusetts are two other example states where the regulations vary which can lead to confusion for consumers and create an uneven playing field for BNPL providers.

Regardless of the markets you operate in, BNPL providers are expected to incur greater compliance costs. These costs might be passed on to retailers through higher fees or changes in BNPL service agreements. There is an evolving regulatory landscape when it comes to BNPL and the BNPL industry is relatively new, so regulations will continue to evolve. By understanding the potential impacts, retailers can adjust their strategies and adapt to the changing BNPL landscape. Retailers must stay informed about any updates that might affect their operations and their checkout sales conversion rates.

Beyond BNPL for consumers

B2B BNPL is an exciting and growing area within the fintech space. It has the potential to transform how businesses manage their finances and make purchases, particularly for SMEs. As the market matures and more providers enter the space, we can expect to see further innovation and adoption of B2B BNPL solutions. B2B BNPL allows businesses to defer payments while suppliers get paid upfront. Buyers get instant access to goods and services without a large upfront cost. Suppliers receive full payment immediately, eliminating late payment risks. Flexible repayment terms (30, 60, 90+ days) keep cash flow healthy. No need for traditional bank loans, which often come with high-interest rates and lengthy approval times. B2B BNPL is the next chapter for BNPL growth story.

While B2B BNPL is still emerging, it’s growing fast particularly in the UK & European markets. Some example B2B BNPL providers include Billie, Mondu, Hokodo and Trevi. It's worth noting that the B2B BNPL landscape is constantly evolving, with new players emerging and existing companies expanding their offerings. The shift is being driven by digital transformation – businesses now expect fast, seamless transactions. With the e-commerce growth more B2B purchases are happening online, requiring instant, flexible payment solutions. SME’s struggle with cash flow and need better financing options.

Alternative spending models

Interestingly, there is a new breed of start-ups that have turned the concept of BNPL on its head. An innovative payment method called “Save Now, Buy Later” (SNBL) will incentivise consumers to save for big-ticket purchases while avoiding the debt trap that can come with BNPL. SNBL is a payment option that involves setting aside money on a regular basis to build up savings, which can then be used to make a purchase later. This approach is based on the principle of delayed gratification, where an individual sacrifices immediate pleasure or convenience to achieve a larger goal or benefit in the future.

There are several examples of SNPL providers, such as Accrue, a US-based platform that helps users save for specific purchases and earn rewards. Hubble is an India-based platform that offers savings plans with partner brands and provides discounts on purchases. Monkee is another Indian provider that allows users to save and invest while earning rewards. In Germany, there is Savrr, a platform that integrates savings plans for specific purchases.

SNPL will promote responsible spending habits and empowers consumers to achieve their financial goals. While still in its early stages, SNBL has the potential to play a niche yet significant role in the future of consumer finance.

Future expectations of BNPL

As BNPL is more mainstream, we expect stricter regulations in many jurisdictions. The BNPL market will likely become even more competitive, with both fintech companies and traditional financial institutions vying for market share. At EDC, we may see some consolidation in the industry, with smaller players being acquired by larger ones or merging to gain scale. We have already seen in the last five years some of the Australian BNPL providers launch in the UK and Europe, but they had faced fierce competition, or a slower than expected consumer adoption and they have retreated. BNPL payment behaviour may be integrated into credit reporting systems, which could help consumers build credit history but also impact their credit scores if they miss payments. Economic downturns or rising interest rates could affect consumer spending and the ability to repay BNPL loans. The future of BNPL is likely to be characterized by increased regulation, seamless integration, expansion into new sectors, such as B2B, and a focus on responsible lending. While challenges and uncertainties remain, BNPL will still play a significant role in the future of consumer finance and gain traction within the B2B segment.

This article was first published by The Paypers, the Netherlands-based independent source of news and insights for professionals in the global payment and e-commerce community.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).