BNPL credit products becoming a leading payment option for consumers in market set to be worth $576 billion by 2026, says GlobalData

When the buy now, pay later (BNPL) credit product first entered the fintech start-up space a few years ago, it was predicted that the service on offer would have very high demand. Indeed, Australian companies like Afterpay and Zip met these expectations, with the BNPL service now making up 2.3% of the global ecommerce market in 2021—or, in other words, for every $100 spent, $2 went towards a BNPL transaction, says GlobalData, a leading data and analytics company.

GlobalData’s latest report, ‘Buy Now Pay Later – Thematic Research’, reveals that the global transaction value for BNPL payments reached $120 billion in 2021, and is set to reach $576 billion by 2026. GlobalData pointed out that regulations needed to be put in place quickly, so issues surrounding credit scores can be rectified before BNPL becomes a leading payment option for consumers. Indeed, the Albanese and Australian governments are now pushing ahead with plans to regulate BNPL services as a credit product.

Competition in the market is also stepping up which may mean that smaller BNPL providers will struggle to survive. In Australia, the Big Four banks have all launched BNPL products. CBA, WestPay and ANZ launched theirs in 2021, with NAB launching its BNPL product in May 2022. Technology companies are also keen to get a slice of the BNPL market, with Apple recently announcing that it will launch Apple Pay Later.

Arnie Cho, Senior Analyst at GlobalData, comments; “There are headwinds on the horizon as BNPL providers depend on merchant fees and late payment penalties for revenue. They also benefit from the extremely low interest rates we currently have for short term debts to fund these interest-free loans. With interest rates rising to control inflation and ease the cost-of-living crisis, BNPL providers costs will increase, putting pressure on already very thin margins from fees and penalties.”

Indeed, some players in Australia’s BNPL market have experienced setbacks since 2021. Afterpay had a net loss of almost $350 million in the second half of 2021, while Zip’s stock price was almost touching A$15 ($11.6) at the end of May 2021 and, as of June 10, 2022, it is now trading at A$0.62 ($0.44) or a drop of over 95%.

Cho adds: “The BNPL market will still enjoy high demand and is projected to continue its strong growth. However, smaller BNPL providers may not be able to survive the competition and could end up being acquired by bigger payment providers or banks. Just like the mobile wallet territorial fight, tech companies may well end up dominating the segment in the years to come.”