The rise of BNPL has excited both retailers and investors, and provoked debate about bringing deferred payment credit within the scope of FCA regulation. The UK financial services regulator, the Financial Conduct Authority (FCA), refers to such retail credit products as “deferred payment credit,” which are currently exempt from consumer credit regulation because of their short-term and interest-free nature. PayPal has capitalized on its existing user base to introduce “Pay in 3,” while a few fintechs from Australia and New Zealand-Afterpay (known as Clearpay in the UK), Laybuy, Openpay, and Zip-have drawn on their home market expertise, where BNPL is more prominent, to launch services in the UK. In the UK today, Klarna is the best-known BNPL 2.0 brand, with 54% of our survey respondents having heard of it. Individuals repay the provider in interest-free installments (see Figure 1).
Providers assess creditworthiness in real time for each transaction, then pay the merchant the purchase value and charge a service fee. We define BNPL 2.0 as digital services that allow people to defer or stagger payment for a product at the time of purchase. This report, however, delves into BNPL 2.0, which has quickly gained popularity with consumers and retailers of all kinds. This was the original version we call BNPL 1.0. Historically, their aim was to make larger purchases affordable by financing them over relatively long durations. Such services have traditionally focused on extending interest-bearing loans (sometimes with interest-free periods) to consumers at the point of sale. Individuals repay the provider in interest-free installments.īNPL has long thrived in the UK in various forms, including point-of-sale (POS) finance and mail-order or catalog credit. The circumstances related to BNPL range from discovering personalized lifestyle products such as clothes and electronics to simplifying online purchases and deferring payment until they’ve received the products). They address a wide range of customers’ “Jobs to Be Done” (a theory proposed by Clayton Christensen as shorthand for what an individual seeks to accomplish in a given circumstance.
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In terms of merchant partners, data from BNPL providers points to roughly 20,000 merchants offering BNPL at checkout.īNPL providers are indeed becoming more prominent in both online and offline shopping.
Extrapolating from our customer survey and data from BNPL companies, we estimate that approximately 10.1 million people used BNPL in the previous year, showing roughly 70% to 80% annual growth. When Bain & Company conducted a survey of more than 2,000 UK online shoppers in July 2021, we found widespread usage, reflecting long-term shifts in consumer behavior. Based on data supplied by BNPL providers, we estimate annual BNPL transactions total approximately £6.4 billion, roughly a 60%–70% increase over the same period a year before. It represented 5% of e-commerce transaction volume in 2020, up from 3% in 2019, according to Worldpay. Whether one looks at transactions, users, or merchants, BNPL has been growing at a blistering pace.
Let’s start by defining the category in a global context. To understand what buy now, pay later (BNPL) is and is not, it’s important to explore the types of BNPL in the UK, along with differences from other forms of unsecured lending.
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