No Money No Problems: BNPL Companies Let Millennials Spend What They Don’t Have

No Money No Problems: BNPL Companies Let Millennials Spend What They Don’t Have

5th August 2021 | 7 min read
  • Embraced by a growing Gen Z and millennial population, the global buy now, pay later (BNPL) market is expected to process up to USD 1 trillion in transactions by 2025.
  • Record breaking investments have been made in BNPL operators worldwide, despite growing concerns over the practice of lending money with minimal credit checks.
  • Still relatively nascent in Asia, companies including Alibaba, Tencent, GoTo, and Pine Labs are fighting for a slice of the pie.

As its name suggests, Buy Now Pay Later (BNPL) schemes give customers an option of buying the product now and paying for it later – often in instalments with no interest. Embraced by a growing Gen Z and millennial population, the BNPL market is expected to see USD 1 trillion in transactions by 2025.Inspired by the success of BNPL in Europe, Asian companies including Alibaba, Tencent, GoTo, and Pine Labs are now fighting for a slice of the pie.

Buying things with money you don’t have is nothing new. Loans, leases, and mortgages are all financial pillars of our modern-day economy. However, while these lending structures tend to accommodate larger purchases, buy now, pay later (BNPL) schemes target smaller and often impulse buys.

Much like credit cards enable consumers to spend more willingly, at least psychologically, data has shown that online shoppers are more likely to convert sales with retailers that offer a BNPL option.

So why BNPL and not credit cards?

A shift in the consumer behaviour among the Gen Zs and millennials, who don’t trust banks, want to buy on interest free credit, as well as keep their debt levels under control. BNPL accounts are frozen the moment customers miss a payment.

The global BNPL market is expected to grow by 181% and account for 13% of all global e-commerce payments by 2024, a survey conducted by financial solutions firm FIS found.

The west is currently leading the way in terms of BNPL adoption.

According to Payments Cards & Mobile, the BNPL market is most concentrated in Sweden, making up 23% of the country’s total e-commerce turnover in 2020.

Germany, Norway, Finland and Australia and New Zealand follow with 19%, 15%, 12% and 10% (Australia and NZ), respectively.

One must scroll quite far down the list to find any Asian countries embracing BNPL. India, Indonesia, Japan, Philippines and Singapore all have BNPL schemes in their markets, but it only accounts for 3% of their total e-commerce.

Thus, presenting huge opportunities in the region. 

And especially when the BNPL user demographic group Gen Zs will be 25% of Asia’s population, the same number as millennials, by 2025.

Bank of America estimated the global BNPL market will grow by 10 – 15x and process USD 650 billion to USD 1 trillion in transactions by 2025.

Image credit: Bread News

How do BNPL operators make money?

As its name suggests, BNPL schemes give customers an option of buying the product now and paying for it later – often in instalments with no interest. From a customer’s point of view, there is no price difference in choosing the BNPL method.

BNPL then pay retailers in full, minus the fees for using the BNPL service.

Data suggests that retailers are happy to pay BNPL operators, as while margins may be reduced, overall sales have increased.

According to leading BNPL operator Swedish firm Klarna, BNPL increases sales conversions by 30% and average order value by 45%.

Of course, if customers fail to pay the instalments on time, they could then end up ultimately paying more. Different BNPL companies have different penalties.

Consequently, the unbeknown customer could very easily be burnt. As a result, the Monetary Authority of Singapore (MAS) has warned against young people using BNPL schemes.

“Young adults without sufficient financial awareness can have access to credit lines before they have the necessary earning capacity,” Cheryl Chan, a Member of Parliament from the ruling People’s Action Party, told Bloomberg. “This is an unhealthy trend.”

BNPL faces almost zero regulation as it is not recognised as a credit product with customers expected to pay as scheduled.

It’s not just government authorities who are put off by BNPL though. Data from Finder showed 27% of Singaporeans said they were financially worse off when using BNPL, citing impulse buying being a common regrettable mistake.

Charges for late BNPL payments across some of the larger BNPL operators globally. Image credit: Bread News

Lessons from Australia

Australia has been an early embracer of the BNPL principal, with numerous companies offering the service. Afterpay and Zip Co are the country’s biggest players and among more than 10 BNPL operators listed on the country’s exchange.

Even the likes of the traditional Commonwealth Bank has launched an in-house BNPL product for account holders.

Usage stats show 5.8 million Aussies already have at least one BNPL account, with the majority paying household items such as fridges and beds, designer jewellery and essentials such as food.

But with success, come challenges.

Payment consultant Brad Kelly highlighted Australia’s BNPL market was getting too saturated. And to capture users, companies were accepting “riskier” customers.

What’s even more worrying is that “Afterpay and Zip are going on spending sprees buying up as many other BNPL companies as they can, because they don’t have a road to profitability and they are instead just growing revenue,” he cautioned.

That doesn’t seem to have stopped investors though with a torrent of cash flowing into BNPL market.

Earlier this week, Jack Doresy’s US payment app Square made a AUD 39 billion (USD 29 billion) bet on Afterpay, a 31% premium to its valuation prior to the deal. This is in spite of Afterpay’s stock price rocketing 713% in 2020.

The rise in the valuation of BNPL operators have been unstoppable with each investment.

Earlier in June 2021, Japanese conglomerate Softbank led a new funding round to value Klarna at USD 45.6 billion. Swedish Klarna ,the leading BNPL operator available in 17 markets, has partnered with numerous global household brands including Adidas, Etsy, Lululemon, Pandora, Sonos, Foot Locker, H&M, Microsoft, MANGO, Sephora, Timberland, and more.

Image credit: Bread News

Asia BNPL operators

BNPL has proven to be a successful, welcomed and profitable business structure in the West. And given that it’s still at a nascent stage in Asia, there are opportunities even amid regulatory concerns.

According to PPRO, the overall Asia Pacific e-commerce market in 2019 was worth USD 68 billion more than Western Europe and North America combined. The B2C market in the region grew by 22%. And 58% of all online purchases in the region were made on a mobile phone.

Here are some listed / soon to be listed companies in APAC that provide BNPL services to keep an eye on.

Afterpay – One of Australia’s hottest stocks that served as a template for BNPL services. More than 16 million consumers and nearly 100,000 merchants globally use Afterpay’s BNPL services, as of end June 2021.

Prior the all stock deal with Square, Afterpay had teamed up with ecommerce payment giant Stripe to expand its US, UK and Canada reach.

Square is seeking a secondary listing on the Australian Securities Exchange for investors to continue to trade the counter.

Alibaba – China’s Alibaba’s Alipay has already been offering a BNPL option for their customers. In 2019, the Chinese firm partnered with Klarna to allow Aliexpress shoppers to pay later. The ecommerce platform’s new store opening rate increased by 132% in 2020. Alibaba also accounted for 53.3% of China’s ecommerce retail market in 2020. In the first quarter of 2020, Alipay had a 55% market share in China.

FinAccel (Kredivo) – Singapore’s FinAccel, which owns Indonesia’s BNPL start-up Kredivo, agreed to list in the US through a USD 2.5 billion SPAC merger with VPC Impact Acquisition Holdings II. Kredivo is the largest BNPL operator in Indonesia and plans to expand into Vietnam and Thailand. The deal is expected to close in 1Q2022.

GoTo – The soon-to-be listed merger of Indonesia’s Gojek & Tokopedia already has a history of BNPL with Go-Pay and Bank Jago services. Due to the behemothic size of both Gojek and Tokopedia, the merger will provide an even wider pool for BNPL to be exercised across.

Pine Labs (Favepay) –  Malaysian Smart Payment app Fave, which is a direct BNPL operator, is working with over 40,000 merchants in the region. The company was recently acquired by Pine Labs for RM 185 million. Pine Labs is looking to IPO in 2022.

Razer – Hong Kong-listed gaming company Razer’s payment arm Razer Merchant Services recently secured a deal with ASX-listed IOUpay to expand their BNPL platform. It also has a partnership with Singapore’s Rely In its most recent earnings, Razer payment services recorded 66.8% year-on-year growth to US$128.4 million for the year. The segment contributes around 20% of the group’s gross profit.

Sea Group – The NYSE-listed internet giant based out of Singapore owns several businesses including e-commence platform Shopee. It has introduced BNPL service, SPayLater, for customers in Thailand and Indonesia.

Tencent – Last year,  Tencent’s WeChat also introduced a BNPL feature in WeChat Pay titled Fen Fu. WeChat, the largest social media platform in China, has 1.1 billion users, with 900 million of them actively using WeChat Pay. In the first quarter of 2020, WeChat Pay held 39% of the market in China.

Zip Co – Founded in 2013, Australia’s Zip Co enhanced its BNPL game by acquiring US-based company Quadpay in 2020. The Australian fintech firm is expanding aggressively, raising AUD 400 million to fund its growth into Canada and Asia.


Written by Cohan Chew

Having co-founded Europe’s biggest East Asian culture website (WeAreResonate.com), Cohan has since ventured into East/West equities. His writing background includes Seeking Alpha, The Motley Fool, Capital A, Time Out Singapore, The Huffington Post, Gigwise and Redstar Qingdao.

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