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Buy Now Pay Later (BNPL) – The next payment disruption in Asia

Buy now pay later (BNPL) is becoming a disruptive revenue opportunity for banks, fintech, platform companies, and the retail industry. It brings in the ease of commodity consumption without an upfront cost, establishing a feasible alternate to traditional lending methods. With a nearly 167% growth in transaction volume in the last 3 years, BNPL establishes a strong footing as a preferred mode of payments. In this talk, we discuss factors contributing to the massive growth:

  • Change in consumer behavior
  • Popular BNPL consumer segments
  • Asia Pacific BNPL market penetration
  • Future roadmap for continued success

Hi everyone, I am Advait and today I discuss a concept i.e., 200 years old but is becoming very popular because of my tech-savvy, spending-cautious population. And when I say that I mean the GenZ and Millennials

But why is this so popular amongst us?

For starters, we like more flexibility while shopping, we like to improve our existing credit scores. And we trust fintech over banks and credit card companies, thanks to easy onboarding and prompt customer support.

Figure 1: Change in customer behaviour

BNPL consumer economics

We Asians, dominate the market space, with 58% of us being millennials. Asia has an Internet penetration of 77% and is a mobile-first economy, digital payment innovation becomes a very crucial pillar for economic growth. Globally, BNPL has primarily focused on the middle-income group, a group that has decent income but finds it hard to manage monthly cash-flows, Asia has presented itself as the best market for BNPL operators, it is estimated that over 51% of Asians will join the middle-class income category by 2030.

Figure 2: Breaking down consumer economics

While all this sounds promising, what is fueling the growth of BNPL in the APAC region.  

So, I would like to ask my audience – Have you ever shopped online?

If yes, then you come under the 8 out of 10 people who have used e-commerce at least once. This dependence on e-commerce has paved the path to a 4 trillion-dollar landmark by 2025, growing at a healthy rate of 17.6%

Figure 3: Ecommerce adoption rates

As of today, BNPL is just digital and is solely dependent on e-commerce, with e-commerce booming BNPL has grown by 167% in just the last 3 years and, will dominate the transaction share with 15% of total transactions, we expect to achieve this number by 2025. With a CAGR of 60% in the spend volume, where you and I would be contributing to 248 billion dollars towards e-commerce using BNPL

Figure 4: Growth in BNPL transaction volume

Growth Opportunities

I am pretty sure by now you’d have a question “but why so much traction? And more importantly where is it becoming a mainstream concept?”. To answer the latter, Australia. With a BNPL penetration of 10%, it is now a mainstream concept, in fact, you’d find many listed companies operating in this segment.

While India, Indonesia, Japan, and Singapore are the next big emerging markets. BNPL operators are betting high and are leaving no stone unturned to dominate. Although China is the biggest e-commerce market, BNPL has seen sluggish growth in the adoption rates but has high POS spend volume.

Figure 5: Country-wise BNPL penetration

Now to answer the initial question, why so much traction? It has allowed users like me to spend more with the same budget, as you just have to pay a fraction while buying.

But if you’re the business owner you might ask yourself, is paying a merchant discount fee worth it? Absolutely, businesses have seen a 30% increase in cart conversions due to BNPL and have seen their cost of acquisition go down as well.

Also do keep in mind BNPL has low rates of Point of sales penetration, the usual comparison of BNPL is with a credit card while One thing often missed is that credit card has a huge point of sale penetration, that too with an interest of about 10 to 15%, meanwhile, BNPL is just digital as of today. Imagine POS transactions with BNPL that too with 0% interest

I personally find it easy to use these services, as most of my purchases are online and so is BNPL. Categories that are aligned with the interests of users like me have seen huge participation from BNPL users, these categories include Beauty and personal care products, Beverages, and Fashion.

The reason for BNPL outperforming in these categories is directly co-related with a low-ticket size along with high-frequency purchases. It has been noted that BNPL has an average ticket size of $200, and if we observe closely these categories also have an average ticket size similar to that of BNPL

Figure 6: Breakdown of spending patterns

You might ask, Advait who’s leading this space? Take a look at the top BNPL service providers in Asia, we’ve categorized them based on their location, so we’ve Southeast Asia, India, and Australia.

Figure 7: BNPL players in Asia

Analyst Views

So will users like me switch to BNPL in the coming years, probably yes. But it’s easier said than done, BNPL providers will have to deploy various strategies to get there.

Figure 8: Road ahead for BNPL operators

Like in the first phase, BNPL players will try to get the customer experience right, be it via reward points, offers, discounts, or something else. Meanwhile, they’ll also try to improve the credit utilization by their users, which when optimized correctly will free-up funds, which can be further used to extend credit.

While the next phase will be marked by onboarding merchants across industries both online and offline and trying to be a B2B favorite. Right now, BNPL only exists for end consumers, but in near future we can see it transition to a B2B model, mostly SMEs, by extending working capital loans, discounting bills of exchange, and much more. While to nail the merchant experience, we can see the rolling out of additional features like free access to invoicing, taxation, and accounting software as icing on the cake.

The last phase would be a challenge for most of the BNPL players, as it will involve giants offering their own BNPL service. From big-box retailers to internet service providers, everyone will start offering BNPL services to their existing users. Asia is dominated by huge conglomerates like Samsung, Reliance, Videocon to name a few, and we can expect to see buy now pay later being accepted by these conglomerates as well as their partner and subsidiary companies.