The Buy Now, Pay Later (BNPL) movement has accelerated at breakneck speed over the past two years, quickly becoming a major payment method for merchants as well as consumers online and offline. 

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It is taking root among millennials at a faster rate than any other generation. As a result, consumer spending trends worldwide have transformed, reflecting the change in how the young aspirational individuals view credit and consume financial services. Particularly in the US,  the percentage of Gen Zers using BNPL has grown six-fold, while millennials’ use of BNPL has more than doubled since 2019. However, the older generation is not turning a blind eye. Now, even Boomers are getting into the act, comprising 21% of BNPL users. Overall, consumers will make nearly $100 billion in retail purchases using BNPL programs in 2021—up from $20 billion in 2019.

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Interestingly, however, BNPL has proven to be attractive regardless of a buyer's education, income, and financial situation. That said, it is somewhat surprising to learn that college graduates and higher earners are more receptive to BNPL than their less-educated, lower-income peers. 

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Today, customers can buy all that they desire and pay in interest-free instalments - all without the hassle of applying for credit cards or dealing with cumbersome processes - Fintech has made this happen. The most common BNPL users in terms of financial well-being are those who report living paycheck to paycheck without any problems paying their bills. Among those who live paycheck to paycheck and struggle to pay their bills, BNPL is a little less popular. However, those who said they did not live from paycheck to paycheck were less likely to use BNPL, despite the fact that these people were more likely to be among the highest earners.

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“However, with growing concerns around rising debt and enabling shopaholics, is #BuyNowPayLater (#BNPL) customers’ wildest dreams or worst nightmare coming true?”

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Credit Risk Management and credit checks remain crucial to building a profitable BNPL business. As of now, PayPal is the most established brand among U.S. consumers for online payments. PayPal’s distinct BNPL feature launched in September 2020 allows consumers to pay for online purchases in four interest-free instalments over six weeks. Since its launch, more than a quarter of BNPL users ranked PayPal as their most preferred provider, and more than 7 million consumers have used PayPal’s BNPL service, purchasing more than $3. 5 billion products. So it is a bit surprising to see that although BNPL is a newer concept, consumers generally prefer more traditional payments companies to provide the service.

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The other most prominent BNPL players (by user count) are Klarna, Affirm, and AfterPay. Those three firms generated a lot of press over the past year as consumers looked for ways to make it easier to buy what they wanted without incurring more credit card debt, even though they still have lots to catch up in terms of market share. Moreover, since PayPal will stop charging late fees on BNPL payments, they run even more risk of decreasing sales or average transaction sizes to PayPal (and other merchants who don’t surcharge on card transactions).

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Hence, other BNPL players (and aspiring fintech companies) will need to make some adjustments. To succeed and differentiate, they will need to specialise and be masters of the customer journey and sharpen their sales attribution claims. As they claim they help merchants make sales that wouldn't have been made otherwise, today’s merchants will demand accurate attribution statistics. They will also become shopping destinations. Afterpay, for example, announced that it would enable its merchant partners to advertise on the BNPL firm`s app to boost their promotions, products, and offers.  Brands can choose the products they want to promote via sponsored listing formats and pay only when a shopper engages with the ad.

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To read more about BNPL in The U.S., check out Part 2 of the conversation here.

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Do you need further insights about modern credit risk scoring in Buy Now Pay Later? Download our ebook here.

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