Buy Now and Pay Later services solving the cash crunch
In the income uncertainty which has followed in the wake of the pandemic, BNPL has emerged as an excellent option for customers to manage their cash flow by allowing them to avoid credit card interest while making purchases they do not have the ability to presently pay for. According to Business Insider, the BNPL industry is expected to grow at a CAGR of 13% to reach a transaction volume of $680B worldwide in 2025.
BNPL accounted for $24B in spending in 2020 in the US alone. Companies like Sezzle, Affirm, Klarna and Afterpay have benefitted from the pay later wave seen in the year end shopping season. Affirm went public in Jan ’21 with a $1.2B IPO with a premium of almost 100% on its listing. Sezzle saw a 338% increase in sales in the US in the six months following the onset of the pandemic in Mar ’20, raising their market cap to above $1B. The growth of these companies is reflected in their website traffic, with Affirm, Splitit and Sezzle seeing a surge of 107%, 64% and 450% YoY respectively.
Swedish company Klarna raised $650M at a valuation of ~$11B in a funding round led by Silver Lake, making it the most valued private fintech company in Europe. It reported $466M in revenue during the first half of 2020, a rise of more than 36% YoY.
Australia saw a rise in M&A and funding activity in BNPL space to leverage the growing opportunity. Afterpay acquired UK-based Clearpay and Spanish company Pagantis and reported its largest sales ever in Nov ’20, realizing $1.5B in total. Its rival Zip has acquired US-based QuadPay, expanding its presence across the US, the UK, Australia, New Zealand and South Africa.
Pay later enablers in India like Zestmoney and Simpl observed up to 78% uptick in their website traffic over the past 6-months in Dec’ 20. While major e-commerce players like Flipkart and Amazon also enabled and promoted BNPL options on their apps.
The rise in popularity and demand for BNPL options among millennials has seen big players like Paypal enter the space with their service ‘Pay in 4’. Prominent players in consumer space like Grab, Gojek and Razer also came up with their pay later solutions amidst the booming digital economy in Southeast Asia. BNPL has mitigated the effects of the demand slump in the pandemic and is an exciting space to watch for the future.
