Buy Now Pay Later ‘A New Fintech Boom’

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Mainly in the developed world, BNPL services gained special attention during the COVID-19 health crisis. In the regions like Africa, however, the service providers still face issues such as limited credit infrastructure and weak purchasing power.

Generally, from the consumers’ side, BNPL adoption is mainly driven by the younger generation, and the main reason to use the services includes zero interest rates and transparent payment plans and conditions.

Moreover, a sampling of UK consumers showed that out of the traditional BNPL offerings, the majority of respondents prefer installment payments, rather than paying the full amount later, according to some reports.

BNPL service providers proliferate, challenging established global brands

As a result of increased demand for BNPL services during the pandemic, major service providers such as Klarna, Afterpay, and Affirm thrived in 2020, and continue doing so this year. These players significantly expanded their customer base amid COVID-19, and their revenues soared. Nevertheless, the net profits did not enjoy such growth, as most of them opted for new projects including the launch of new services and further market expansion.

Global Buy Now Pay Later Market Report 2021

The BNPL trend has also taken off in Australia where players including Afterpay, Zip Pay, and Splitit have taken share from traditional credit card companies owing to fast approvals.
In Europe, BNPL is more popular in the UK as compared to other nations including Italy or Germany. Shoppers in the UK observe retail finance as a convenient way to split the cost of expensive purchases. However, in Germany, open invoice or pay after delivery is a popular payment method. In Germany, RatePay provides checkout lending solutions and open installments for e-commerce. Other key players in the Western European market include Divido, Mash, CreditClick, and AfterPay.

In Canada, consumers are moving away from credit card fees in favor of debit or cash, owing to which retailers are offering BNPL service. For instance, PayBright’s BNPL service is being offered to Canadians via 6,000 other Canadian and international retailers. BNPL service is being used for purchase of furniture, electronics, fashion and apparel, sports equipment, and others.

Further in August 2020, AfterPay extended its BNPL service in Canada. AfterPay enables shoppers to buy products and pay for it in four instalments over a short period of time. The service is offered to Canadian consumers for free assisting customers to spend without incurring interest, fees or revolving and extended debt.

Trend Analysis: The Buy Now Pay Later Revolution

What’s the Benefit of Buy Now Pay Later Services to DTC (Direct-to-consumer) Brands?

For such a high fee, you’d expect some serious benefits. There are several excellent reasons why so many brands are already offering this payment solution.  For one, stores tend to generate a lot more revenue. Shopping carts get bigger and are abandoned less often when the payment model is offered, according to the team at PayBright. When consumers can spread the payment of large purchases out over several weeks, they are less likely to suffer from sticker shock and more likely to make big purchases they otherwise wouldn’t have been able to afford. Some companies have reported more than 30% increases in average order value as a result of Buy Now Pay Later solutions. 

Buy Now Pay Later programs can even attract new customers. Increased referral traffic is another benefit of the payment model, says President and Founder of The GM Agency Amelia Castellanos. Because firms like Afterpay advertise partner brands in their directory and stores can attract shoppers who might not have otherwise have shopped their brand. 

All that Glitters Isn’t Gold

While Buy Now Pay Later offers plenty of benefits to stores and consumers alike, there is a darker and somewhat murky side to the industry. First, there’s the issue of affordability. Just like with credit cards, the pay later offers are only affordable if consumers make payments on time, says Fortune’s Rachel King. “If they don’t make payments on time, again, just like with credit cards, those penalties rack up fast, and consumers face the potential of falling into a great amount of debt in a short amount of time.

There’s also a regulatory problem. Many BNPL firms can sidestep financial regulations.

There aren’t regulations on how they can market themselves and they don’t have to include key information in ads or at checkout. “This means that some consumers, particularly those who might be younger or more vulnerable, are getting themselves into financial difficulty.”

What’s the Future of Buy Now Pay Later?

The future of Buy Now Pay Later looks very bright. According to one report, the industry will grow at 9.8% annually over the next five years, eventually exceeding $1 billion. There’s certainly plenty of room to grow.

Buy Now Pay Later firms are experimenting with consumer-focused platforms and tools, writes Gulnaz Khusainova, CEO and Founder of Easysize. Klarna has launched an app that allows consumers to make purchases on any product with a virtual Klarna card. Afterpay is launching an in-store product and delivering personalized recommendations based on a consumer’s activity. 

BNPL and the Pakistani market

Slow to the digital field in general; Pakistan’s ecommerce marketplace has hit a major growth spurt in 2020 and 2021, with revenue growing by over 35 percent in the first quarter of the fiscal year 2021 alone. It is also a younger demographic: 40 percent of the population is under the age of 30. Also, the increased access to digitization – even rural areas have 3G at this point – has served to give commerce a massive shove forward.

In absolute terms, the IT exports reached $2.12bn in 2020-21 as against $1.44bn in the preceding year, according to data released by Commerce Ministry on Monday.

“I want to congratulate our IT exporters for crossing the $2bn export mark for the first time in our history,” Commerce Adviser Razak Dawood said in a statement on Monday.

Mr Dawood said he always believed in the abilities of IT professionals and entrepreneurs. “You have done a remarkable job and I encourage you to market your exports even further to achieve more”, the adviser further said.

However, what Pakistan is lacking, QisstPay (Pioneer BNPL program launched in Pakistan) Co-founder Jordan Olivas told Karen Webster in a recent conversation, is an easy way to access credit. Credit card penetration is low, and cash remains king when it comes to making payments. The market clearly needs another option, which is what QisstPay aims to offer as it introduces buy now, pay later (BNPL) as a tool to the Pakistani market.

“The problem in Pakistan today is that there aren’t a lot of ways to get formal credit,” noted Olivas. “So this is something very specific. We are not offering lines of credit. We’re not issuing loans. What we are doing is factoring invoices, in a sense. We’re essentially buying the invoice from the merchant and extending a partial net 30 to the consumer.”

As a result, the consumer gets a chance to split up their payments – paying 50 percent at the time of purchase and the other half 30 days later. That payment cycle was chosen to match up with typical Pakistani pay cycles, which are usually 30 days.

The solution is designed to offer what firms like Afterpay and Klarna provide to consumers all over the world: an easy on-ramp for controlled digital spending. To get started, consumers need only provide their phone number, address and debit or credit card numbers (to make the first payment). QisstPay does not collect a photo ID or a customer’s CNIC (the local equivalent of a Social Security number), which greatly streamlines the onboarding process.

The Challenge of Offering Something New

While there is much to be said for being the first player out on a greenfield – as QisstPay is in Pakistan – there is the massive challenge of getting both consumers and merchants on board and willing to use something new. While services like Afterpay might see their most avid users tapping into the service five or six times a month, a QisstPay super user might use the platform once or twice.

But Olivas believes they will see that change over time, particularly as they are able to recruit more merchants onto the platform, and as the new payment form becomes more familiar to customers. This has been the pattern as BNPL platforms have emerged elsewhere in the world, he noted, and one that seems on track to repeat as the payment method emerges in Pakistan.

And Pakistan is the only market QisstPay is taking on – the goal isn’t to plant a flag here and then see how many more places they can take on. Pakistan is an unusual and complicated market, said Olivas, and trying to focus elsewhere is a good way to fail widely. As the fifth-largest country on Earth (following China, India, the U.S. and Indonesia), Pakistan is a plenty big enough challenge all on its own, said Olivas.

But it’s a challenge that he believes promises big rewards for the player that can properly debut BNPL.

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