![]() As indicated in the figure below, aspects of BNPL are currently unregulated in many markets, but a variety of initiatives to tighten up regulation are underway. Part of BNPL’s growth can (arguably) be attributed to the fact that it operates under a lighter regulatory regime than traditional credit products in many markets. While BNPL is often marketed as a flexible form of payment, critics argue that BNPL is simply a digitised version of credit cards and traditional purchase financing that results in a higher cost to consumers. Note: GMV = Gross Merchandise Volume gross revenues exclude net results from financial transactionsĪs BNPL has grown, so has public and regulatory scrutiny. As a result, critics argue that effective interest rates become unreasonably high for consumers, and that BNPL providers’ customer acquisition and operating costs are too high relative to small loan amounts. Critics argue that the high approval rates necessary to gain adoption lead to high credit losses, and that fintechs cannot prop up the necessary costs of funding to achieve sustainable margins. The BNPL provider is keen on shifting its brand association from BNPL to other services, demonstrated by a series of value-chain expansion activities and the launch of Open Banking platform brand ‘Klarna Kosma’.Ĭontinued losses at Klarna and others (e.g., Afterpay’s losses also widened prior to its acquisition by Block) have prompted many observers to question the fundamental economics of the model. This ambitious strategy has not always gone smoothly, and Klarna has grappled with historic regulatory challenges and negative public perception. Many of these acquisitions have been established to become a remote commerce ‘super app’ that offers shopping and loyalty in addition to credit. Klarna has rapidly entered new geographic markets (to which it attributes some of its profitability challenges) and has made 12 acquisitions over the past 5 years. As illustrated in the figure below, Klarna’s net loss widened significantly in 2021, due in part to increased credit loss rates. Source: Klarna, Crunchbase, Flagship Advisory Partners researchĭespite the lack of competition from traditional providers, rapid geographic expansion, and rigorous M&A activity, the BNPL industry faces meaningful challenges. Many have grown via geographic expansion, and Klarna, Zip, and Afterpay have entered multiple markets.įigure 4: Timeline of Klarna M&A and other select events (Y-axis= millions of users) ![]() BNPL’s expansion to the credit card-centric UK and US markets was initially greeted with scepticism, but it gained traction in those markets due to its convenience.Īs the success of the product has grown, the number of BNPL providers has proliferated, with over 50 in the European and North American markets today. The product experienced strong uptake in continental European markets that were traditionally averse to the revolving credit cards, not only due to instalments being easy to understand, but also due to brand perception (credit cards often being perceived as ‘bad’ or ‘uncool’), and saw a powerful fit with easy checkout processes for remote commerce. As BNPL has grown from a niche ecommerce payment method to a mainstream form of consumer credit, so has scrutiny from investors, regulators, and the public.īNPL was popularised in large part by Klarna, which beginning in the mid-2000s digitised legacy paper-based processes for catalogue purchases in the Nordics and then began to nudge consumers to roll those purchases over into instalment credits. ![]() Flagship Advisory Partners reveals the complete picture.īuy Now, Pay Later (‘BNPL’) has grown rapidly in recent years, driven by changes in consumer preferences (younger customers often prefer instalments over traditional revolving credit cards) coupled with a COVID-boosted shift in shopping patterns towards remote commerce. Buy Now, Pay Later (BNPL) has continued its rapid growth including brisk M&As, investments, and partnership activities, but with some challenges on the horizon.
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