Buy Now, Pay Later at a Crossroads


Buy now, pay later (BNPL) finds itself at a crossroads.

BNPL is the newest twist on the centuries-long practice of extending free credit to consumers at checkout while collecting fees from merchants.

BNPL has grown from a fringe payment method in the early 2010s to one at the heart of the payments mainstream globally. By boosting conversions in markets for big-ticket items and luxury goods, then later broadening its scope to one of financial inclusion, BNPL sought to provide credit to the otherwise

Today, BNPL is facing macroeconomic headwinds that have stressed the foundations of the business model, even as consumer adoption remains strong. So, what’s next for BNPL?

BNPL 1.0

Where we’re going requires a quick look at where we’ve been. BNPL burst onto the scene in the early 2010s and saw a growth explosion into early 2022. Pioneered by fintechs that became global names— like Klarna from Sweden, Afterpay and Zip from Australia—BNPL sprouted strong local and regional options across APAC, including Paidy in Japan, Atome in Singapore, Kredivo in Indonesia, Cashalo in the Philippines and WowMelo in Vietnam.

Historical low interest rates resulted in abundant capital for fintech, and well-funded start-ups with large marketing budgets sought growth over profit in land grabs for consumers. Limited regulatory structures reduced friction. The result was a significant uptick in merchants offering BNPL and rapid consumer adoption. Global online transaction value grew five-fold between 2018 and 2022. According to the Worldpay Global Payments Report 2023, BNPL represented 5% of global e-commerce transaction value in 2022, or US$285 billion.

Consumers across APAC embraced buy now, pay later as an accessible credit option. Over $100 billion of BNPL spend took place across APAC where it accounted for 4% of online spending. Comparatively low credit card penetration and high percentages of unbanked consumers created ideal conditions for BNPL providers.

BNPL was ascendent and the sky was the limit.

BNPL 2.0

The high-flying days of the first iteration of BNPL fell closer to earth in early 2022. Worsening macroeconomic conditions challenged the initial BNPL model that gained steam in an era of low-interest rates and intense e-commerce growth. A global post-pandemic economic hangover took hold in the form of rising inflation and interest rates. Rapidly increasing capital costs sparked a flight from fintech, resulting in lower valuations, slashed expansion plans and high-profile layoffs.

Meanwhile, regulators in Australia, India, Singapore and elsewhere are introducing rules to address concerns around customer well-being. Regulators are pursing aggregate caps on outstanding debt with scaled increases in credit-worthiness scrutiny for high-value borrowers. Regulators in several markets seek to bring BNPL closer to a framework that resembles that of legacy consumer credit cards. Tightening landing standards, increasing transparency of interest and fees for late payments and aggregate lending caps are likely in key BNPL markets.

This new BNPL era is further characterized by a diversification of providers beyond fintech pure-plays to be offered by (and embedded in) big techs such as Apple Pay Later, banks such as NAB Now Pay Later and super apps such as Pay Later by Grab in Singapore. BNPL is increasingly offered as simply one tool
within an ecosystem of credit options, and a diversification of flexible repayment terms beyond “pay in 4” includes longer terms and revolving accounts.

The cracks in the business model are showing. Australia’s Openpay fell into receivership in February 2023. In July 2022, the world’s best-known BNPL brand, Klarna, took an 85% plunge in valuation in a single year while expanding well beyond pure-play BNPL with shopping super-app aspirations. Aussie firm Zip’s global aspirations have largely crumbled as they retreated from 10 of 14 global markets in early 2023 amid a 95% drop in stock price over two years.

What’s next for BNPL?

The recent stresses seen in the BNPL business model are unlikely to be the last. Consolidation of purepay BNPL providers may also emerge as a distinctive feature of this iteration of BNPL, given the proliferation of providers, the entry of large and well-funded players, and a cycle of lower valuations for

Despite these headwinds, BNPL continues to demonstrate strength when measured by consumer interest and rising transaction values. GPR 2023 projects that BNPL will continue to grow across APAC at 15% CAGR through 2026 when it will account for over $180 billion in regional online spending.

The unanswerable questions faced in the early days of BNPL’s new phase are many. Which providers will emerge from the headwinds stronger? Can pure-play providers pivot from growth and achieve profitability? Or is BNPL’s future one of a customer acquisition tool by banks, super apps, tech platforms
and e-commerce giants seeking to monetize consumers in other ways?

The questions are existential, and the stakes are high for the BNPL industry that’s continuously reinventing itself.

Author: Phillip Zerbo is a Market Intelligence Manager at Worldpay.


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