Interview Synopsis

Buy now, pay later – Q2 2022 update

  • Public Equity
  • Financials
  • North America

Buy now, pay later (BNPL) offerings by individual merchants in the US could hit 100% adoption by the end of the year, according to a former executive at Affirm Holdings Inc.

Buy now, pay later offerings in US to hit 100% retail adoption by 2022

In an Interview with Third Bridge Forum, the specialist said that consumers view BNPL as the “smart way to spend their money” after debit cards, especially in light of rising inflation. However, consumer habits are likely to change as the broader macroeconomic environment impacts consumer spending, and the specialist said BNPL offerings could be vulnerable to “pullbacks” around discretionary purchases. 

We were told that BNPL merchant discount rates will trend towards credit card interchange fees over time. However, the specialist believes the degree of progression will differ from high to low AOV segments due to competition. They also highlighted the complexity of switching BNPL offerings for individual merchants including integration risks, the timing of merchant technology decisions and considerations for target audience traffic. 

The specialist expects greater market consolidation going forward, with Block, Klarna and Affirm having the best chances of coming out on top. The specialist said the Block-Afterpay combination was an “interesting move” given it can integrate both merchant and consumer products, and has an “active consumer user base”. On Klarna, the specialist said it had done “a good job” defending its position as the BNPL of choice for US e-commerce, while they also praised Afterpay for successfully building its brand around fast fashion and millennials. 

Offline BNPL could become a potential growth area, according to the specialist, with efforts being made to use payment integration, physical cards or mobile QR codes for offline transactions. The area is as of yet “unproven” but the specialist told us it is something that could grow “quickly”. 

We were told that increased industry scrutiny and regulation would be a “worst-case scenario” for BNPL companies. The specialist said investors should monitor recent attention from the Consumer Financial Protection Bureau on the BNPL market to see what effect it has on practices such as late fees and payment mechanisms, which differ between different BNPL companies. 

Over the next 3-5 years, the specialist said it will be interesting to see if the significant investment in merchant and consumer acquisition has been a “smart use of money”, or whether the current “hype” around BNPL is just a flash in the pan. 

To access all the human insights in Third Bridge Forum’s Buy Now, Pay Later – Q2 2022 Update & Competitive Outlook Interview, click here to view the full transcript.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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