What is BNPL?
With the traditional shopping season approaching, ecommerce sites have been making every effort to not only attract customer’s attention by providing different promotion campaigns but also try to provide a more frictionless and smoother purchasing journey to make buyers can spend more money without hesitation. Now, ecommerce site respectively introduces the payment method — BNPL and BNPL just take the online shoppers by storm. So today we are going to see what is BNPL and what is its opportunity & threat?
What is BNPL?
BNPL means Buy now pay later. Basically, it’s a payment method that allow you to deter to pay your bills for 6 months. Sound like a credit card, right? Yes, but there is intrinsic difference:
1. BNPL barely requires credit check which means you don’t need to hand in your salary notice or financial statement to the service provider. It is trust-base.
2. BNPL’s payment cycle is per transaction instead of monthly basis.
3. If you are unable to pay the installment, your account will be frozen and it might incur some penalties including late fee or deferred interest, but the interest rate is not as high as credit card.
4. Source of revenue for BNPL provider derives mainly from merchant’s 4–6% of transaction fee and partially from customer’s late fee.
What is its TA (Target Audience)?
BNPL’s TA is someone who likes to deter their payment and break it into smaller installment. Generally speaking, their TA and credit card company’s TA are overlapped, but actually the BNPL main users are some people who can’t sign up for credit card services like student, housewife or new graduate. Also, BNPL’s main users are relatively younger like millennial or gen z. People in younger generation is more willing to adopt a new technology and there is no significant switching cost. In the long term, BNPL service will gradually chip away credit card’s market share and kill their opportunity to grow.
What are the key players in BNPL industry?
1. US payment firm — Affirm went public in Jan 2021 and it values nearly $43 billion. Affirm has partnered with not only ecommerce site including Shopify, BigCommerce and Zen-Cart but also retail giant Walmart, so now people can use BNPL method in the physical store as well. Besides, Affirm are Amazon’s exclusive Buy Now, Pay Later partner in the United States through January 2023.
2. Australian company — Afterpay was acquired by Square for $29 billion in 2021 also keeps partnering with retailer brand like Affirm to make its in-store payment more pervasive. Now their service is available in US, UK, Australia, France and Italy.
3. Swedish fintech giant — Klarna valued rise to $46.5 billion and it is expected to make its stock market debut in later this year or early next year.
Just like I mention above, BNPL TA is someone who can’t register a credit card but would like to deter their payment. Hence, entering into ASEAN countries is a reasonable strategy. As we know, except for Singapore, the credit card penetration rate in south east Asia is super low. But in some countries, most people have at least one bank account and that just paves the way for BNPL provider to convert those people more easily. Only thing they need to consider is whether their existing mobile payment provider would like to enter to the industry or not. (will discuss this later)
In my view, there’s no very deep moat for BNPL service provider which mean the entry barrier is relatively low, so existing financial titan can easily build up their service or even directly acquire the BNPL startup to enter in the market. For example, it is really easy for existing e-wallet provider like LinePay or AliPay to launch an identical service. Also, they do partner with lots of merchants, so they don’t need to develop their own network again.
From the existing user’s perspective, there is no switching cost and the customer journey could be much better (no need to download and jump off to another app). On the other hand, every SAAS company would like to launch a super app for satisfying various kind of customer’s need. Therefore, if the pie is big enough, they will do so.