NEW YORK–While its growth has been strong, a new forecast from Moody’s suggests buy now, pay later (BNPL) solutions have “significant growth potential” due to the appeal to both consumers and retailers.
Moody’s reported its latest fintech research explores the evolution of Buy Now Pay Later during the pandemic and how contrasting strategies are driving growth for fintech leaders PayPal and Block (formerly Square Inc.).
Among the highlights of the report:
- BNPL growth accelerated through the pandemic, driven by ecommerce share gains, as well as increasing acceptance at the physical point of sale. Millennials and younger consumers were early adopters of BNPL, but use is increasing across age groups.
- BNPL has significant growth potential because of its value added to both merchants and consumers that merchants are willing to pay for.
- For merchants, the product drives incremental sales through attractive promotional financing, higher conversion, higher repeat purchases, chargeback protection, and meaningful lead generation through target advertising and popular consumer shopping assistance applications.
- For consumers, it is a source of attractive financing and free float which increases purchasing power, with valuable shopping assistance features.
- Block and PayPal pursue distinct strategies in BNPL, but both have strong growth potential.
- Afterpay's focus on differentiation. The Afterpay value proposition to merchants is anchored by its high-engagement consumer shopping assistance application as a channel for targeted marketing and customer acquisition that drives leads to merchants. Integration with Cash App will further increase Afterpay’s customer acquisition value to merchants’ marketing.
- PayPal's focus on ubiquity. Unlike the pure-play BNPL providers, PayPal had a very large base of merchant and consumer customers when launching BNPL, making broad availability a key benefit. PayPal’s approach of making the product available in its widely used digital wallet makes it inherently ubiquitous across merchant and consumer relationships.
Trend May Change
All U.S. BNPL competitors are experiencing growth, but that may change over time, according to Moody’s lead fintech analyst Peter Krukovsky:
“U.S. Buy Now Pay Later market leaders' differentiation strategies stem from their relative business strengths. The BNPL market is evolving rapidly, and each competitor is looking to differentiate its product,” said Krukovsky. “While all leaders are currently experiencing strong growth in BNPL volumes, the long-run sustainability of growth will be determined by the perceived relative value created for merchants and consumers by their distinct strategies.”
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