Janice R. Andrews
In 2023, the buy now, pay later (BNPL) business saw a notable increase in volume that appeared to be the beginning of an irreversible development trajectory. The sector faces difficulties in 2024 that need for a careful balancing act between growth, profitability, and responsible lending. Even while expectations for BNPL growth in 2024 are largely positive, there are unavoidable underlying worries.
Upbeat Momentum: Forecasts and Record-Shattering Results
A number of encouraging signs point to a bright future for the BNPL industry in 2024. According to a recent analysis by Juniper Research, the value of worldwide BNPL transactions is expected to rise significantly, more than doubling from $334 billion in 2024 to an astounding $687 billion by 2028. Significant BNPL expansion is anticipated in the U.S. and the U.K., according the study.
The good news is further reinforced by Insider Intelligence/eMarketer, which projects a significant rise in the value of BNPL transactions in the United States alone, from $80.8 billion in 2024 to $124.8 billion in 2027. This optimistic prediction is further supported by Adobe’s data on the 2023 Christmas shopping season, which shows record-breaking $16.6 billion in BNPL spending online—a 14% rise over the previous year. The full-year 2023 numbers came in at $75 billion, a whopping 14.3% increase.
However, as CEO of one of the industry heavyweights, Klarna, Sebastian Siemiatkowski, showed, behind the surface of these excellent data lurks a warning tale. As Klarna was enjoying the results of Black Friday, she saw that a large percentage of the volume was generated by sales. This realization calls into doubt the BNPL model’s long-term viability and profitability.
The Winds of Change: Risks and Reminders
Siemiatkowski’s word of warning goes beyond passing trends. He emphasized how artificial intelligence may affect unemployment, indicating that the sector has to carefully traverse the rapidly changing technological landscape.
While Klarna gets ready for what may be its IPO and rolls out subscription services like Klarna Plus, rivals like Affirm are changing their focus and trying to become full-service payment firms instead of just BNPL suppliers. As BNPL enterprises work toward consistent profitability and diversification, the sector is changing.
Moody’s Investors Service highlighted the importance of the next years for BNPL companies in a study dated late 2023. To stay ahead of the game and not get eclipsed by established banks, they need to cut expenses, boost earnings, and hold onto market share. According to the research, if these objectives are not met, conventional banks may end up controlling the market.
BNPL Evolution in 2024: Banks’ Role and Funding Issues
Traditional banks are anticipated to become increasingly important in 2024 as BNPL develops further, providing installment financing through credit card programs and other BNPL projects. According to Moody’s analysis, BNPL companies are facing a daunting task in the upcoming years: cutting expenses and raising income while fending off the possibility of established banks taking a dominant position.
For nonbank fintech BNPL businesses, who normally depend on investors for financial support, funding is still a crucial component. Since any volatility in the market might affect these businesses’ capacity to obtain money, the stability of the nonbank wholesale funding market becomes essential.
Partner and co-founder of Klaros Group Adam Shapiro highlights the significance of the nonbank wholesale financing market, saying that “providers of wholesale funding tend to react as if someone’s got a dangerous new variant of Covid” when the global credit market sneezes.
Prospects for BNPL and Banks in the Future
In spite of the difficulties, the BNPL environment offers chances for development and cooperation. Some banks provide merchant-side BNPL schemes, whereas larger banks are already involved through credit card installment plans.
In the future, smaller depository institutions could discover chances in the changing BNPL field if they have nimble ways and creative thinking. According to Shapiro, “There could be opportunities to develop new revenue in a number of ways, from offering a BNPL program yourself to providing wholesale funding lines or access to a deposit-heavy balance sheet.”
The BNPL business has both promise and caution for 2024. Whether the purchase now, pay later model is a success or not in the future will depend on how well it handles the difficulties of profitability, sustainability, and possible disruptions. These obstacles will be met or overcome by strategic choices and ethical behavior.
