BNPL at an inflection point
The TAM for online payments is roughly US$10 trillion worldwide today, with BNPL operators currently holding less than 2% of that total. However, I think BNPL’s market share could surge to around 10% of online payments by 2025 or 2026. The five biggest BNPL players are already growing their volumes four to five times faster than much of the global e-commerce industry. In my view, these swift growth rates and likely market share gains accrue from a potent combination of trends: changing consumer appetites and habits, cheaper and easier access to credit, and better online customer “checkout” experiences.
Consumer tastes and preferences are increasingly gravitating from taking on revolving credit to making purchases via installment debt. BNPL companies allow consumers to “stretch” payables from 30 days (the typical “free revolve” period on a credit card) to 60 days up to three years with no interest charges, and under certain circumstances, no late-payment fees either. In addition, BNPL companies operate on modern technology stacks with secure, seamless, and integrated checkout processes that are mobile and app-native, making it a smoother (and safer) ride for consumers to buy products online. Of course, convenience is key as well.
Potential downsides versus traditional payment offerings? There’s often a relatively small credit limit — as low as a US$500 maximum outstanding balance in some instances. BNPL operators typically do not report to credit bureaus, so it’s not the best way for consumers to build or improve credit scores. On the merchant side, take rates1 are about twice as high as traditional credit/debit interchanges, but conversion rates also tend to be high. A/B tests I’ve seen suggest merchants can boost checkout conversion meaningfully with a BNPL service.
Bottom line: For most consumers, the positives clearly outweigh the negatives, making BNPL a rapidly expanding category with tremendous upside, in my judgment. And particularly for businesses with gross profit margins of greater than 20%, BNPL can be a very effective tool.