Buy Now, Pay Later: Growth, Challenges and OpportunitiesBy Jaime Márquez | Mon, 08/08/2022 - 13:00
Buy Now, Pay Later (BNPL) payment plans have become popular with customers looking to spread the cost of purchases over several payments, without the need of a credit card. Thus, the pandemic not only drove a massive shift to e-commerce but also set the scene for disrupting the payments and processing ecosystem.
According to data from the National Baking and Stocks Commission (CNBV), 46 out of every 100 people between the ages of 18 and 70 in Mexico still do not have a credit or debit card. And according to the National Survey of Financial Inclusion (ENIF) 2021, 54 percent of people in that age range have one of the two bank plastics.
With the outbreak of the pandemic, digital payment methods have grown. And with the rise of digital platforms, companies have opportunities to improve the user experience and grow internally. In this context, new options have been evolving to provide users with new payment methods. Even without a credit history, BNPL will allow new generations to have access to credit.
This phenomenon is a great advantage for new generations, such as Gen Z, since it allows them to build a credit history from their first loan. If we take into account that Gen Z are people who are just starting their credit history, and hence, have no credit history, banks may not accept them as credit applicants as a result.
BNPL consumers are demanding faster, simpler and more secure payment methods and they are transforming online point-of-sale systems. And, as many shoppers switch to "super" apps to manage their finances and investments, tech firms are looking to make a bigger splash in the banking landscape through mergers and acquisitions.
Based on figures from RBC Capital Markets, BNPL's online offerings increased average ticket sales by 30-50 percent and increased the proportion of customers who ultimately made a purchase.
The research also shows that as millennials and Gen Z eschew credit cards and embrace e-commerce, the BNPL market is expected to grow exponentially. In 2019, the BNPL market amounted to US$60 billion, which accounted for 2.6 percent of global e-commerce. Worldpay estimates that it could grow at a compound annual growth rate (CAGR) of 28 percent to reach US$166 billion by 2023. Digital wallets, the next most popular type of e-commerce, are expected to grow at a CAGR of 18 percent.
In Mexico, 41 percent of people are banked and more than 80 percent have access to mobile electronic devices. Coupled with the increase in digital services during the pandemic, consumers are shopping more online while staying at home. Most of the major BNPL providers have payment options integrated into retailers' websites, making it easier for customers to choose the "defer payments" option at checkout.
At the same time, more and more buyers are experiencing cash flow problems due to the economic conditions caused by the pandemic. This has made the decision to spread payment for an item of considerable value more attractive.
Businesses can benefit from providing this purchase option because they can give customers the choice to easily buy now and finance through monthly installments. And customers can easily take advantage of and choose monthly financing options at checkout, either online or in person.
The company Sistema de Transferencias y Pagos (STP) simplifies the payment process for BNPL companies, both for sending funds to the merchant's bank account and for collecting monthly payments from the end user. STP enables an instantaneous payment and receipt of funds through SPEI by providing businesses with a connection to SPEI, in which STP allows the BNPL company to assign a unique interbank CLABE account to each customer to cover their debt payments. In this way, BNPL users can pay from their bank accounts by SPEI transfer without leaving home and their payment will be reflected in real time.
Merchants can also benefit from offering BNPL to their customers by reducing the possibility of losing a sale due to cost barriers. Other advantages for businesses include:
- Increased revenue by offering flexible payment options.
- Cash flow growth by receiving the full purchase amount from the lender up front.
- Ability to stay ahead of the competition by offering more payment methods.