Buy Now Pay Later (BNPL) expected to record strong growth over the forecast period in the US

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Consumer spending has transformed over the past few years, indicating a change in how customers use financial services and view credit. The economic upheaval following the COVID-19 pandemic has pushed companies to offer alternative payment options including BNPL to attract customers. Ease of 0% interest financing as well as instant benefit of paying later for a purchase is pushing the acceptance of BNPL payment option.

With the onset of COVID-19, consumer spending dropped leading to economic slump. As per the U.S. Department of Commerce, consumer spending dropped by 7.5% in the country during March-April 2020 due to COVID-19. The economic downturn has forced people to save money, limit their extraneous purchases, and pay their existing bills. Though the global economy is expected to recover in 2021, customers will still be mindful of their spending.

Moreover, credit card transactions witnessed a decline due to the pandemic. Visa for instance, recorded credit card transactions decline by 31% by the end of April 2020, as consumers purchased only essential items. Also, there has been shift to debit cards during the COVID-19 period.These factors have given rise to companies offering alternative flexible payment options such as BNPL to lure customers and boost their sales.

Due to the pandemic, customers shifted to online shopping which is helping BNPL gain popularity as it acts as a micro finance alternative for customers, offering a sense of ease. Afterpay added 17,300 customers each day in FY2020 (ending June 2020) increasing to 20,500 during Q4’2020 (March-June 2020), due to COVID-19.

As COVID related movement restrictions eased in Q4’20, retailers focused on capitalizing the increasing BNPL adoption trend by offering BNPL in-stores. For instance, in October 2020, Simon Property Group, a shopping mall operator in the US, introduced Afterpay payment plans at all its shopping centers, ahead of the festive season. Customers can buy products either via Apple Pay or Google Pay by using the digital wallet card in the Afterpay app.  Similarly, in the following month, Crocs, bareMinerals, Lilly Pulitzer, and Fabletics, followed the trend and launched BNPL solutions.

Credit risk assessment and credit checks remain vital for a profitable BNPL business. The growth of BNPL is also creating issues such as higher defaults. The ability to assess borrower data and make meaningful decisions will enable BNPL players to differentiate and create a competitive advantage.