Education and healthcare sectors are expected to drive the next growth phase for BNPL firms

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Over the last few years, the buy now pay later industry has matured significantly. From branching out from retail to encompass services of all types, the evolution of buy now pay later (BNPL) products has been rapid with popularity among consumers growing exponentially during the global pandemic outbreak. While the BNPL industry is facing challenges amid the current macroeconomic conditions, popularity among consumers has continued to grow. The rising cost of living and interest rates means that more and more consumers across the world are turning to BNPL products to fund their purchases.

Notably, merchandise is not the only thing consumers are looking to fund through BNPL. Education and healthcare services are following closely behind as the current economic environment and the rising cost of living puts pressure on the monthly budget of consumers globally. For many, education has been one of the leading reasons for taking out loans. Tuition, books, and room rents, among others, are the various things that students need to fund during their academics. Consequently, making BNPL a perfect fit for the education sector.

The growing need among students to access credit has resulted in many players, beyond schools, dipping their toes into the BNPL segment. For instance,

• Digital education merchants, such as Simplilearn, upGrad, Fortuna Admissions, Knowledgehut, and ThinkLouder, are all offering BNPL payment options. These firms have partnered with Splitit, one of the leading players in the BNPL segment in the United States. Notably, Splitit has a network of more than 100 merchants offering BNPL options in the education sector.

The partnership with Splitit has allowed digital education merchants to increase their sales volume by 350% since 2019. In Q3 2022, the firm recorded a growth of 225% quarter over quarter, with a month left in the quarter. This shows the growing demand for BNPL payment options in the education sector. On average, students are spending US$1,500 over 8.5 installments. This is much higher compared to US$1,240 over 7.26 installments in 2021.

Along with Splitit, players such as Zip and Humm Group in Australia, are also offering BNPL payment solutions to students to pay for their college tuition.

Like education, the demand for BNPL is also growing significantly in the healthcare sector. In the United States, healthcare affordability has been a long-standing issue. BNPL players are looking to fill this gap by offering consumers the ability to finance their health procedures in the same way as they would fund their retail purchases. For instance,

• Splitit has partnered with medical payments firm Docpay, thereby increasing the number of healthcare deals by 50% over the last six months, leading to October 2022. Furthermore, the firm has also partnered with orthodontics, respiratory tech, and in-vitro fertilization providers.
• In the United States, Future Family is among the several startups that are aiming to make fertility treatments more affordable. The San Francisco-based firm launched a product that allows borrowers to repay the loan in 12 months at zero interest. Before this, the interest rate charged was between 6% to 18%.
• Zip is another player in the healthcare sector that has partnered with merchants in dentistry and in-vitro fertilization. Notably, Zip allows borrowers to make repayments over the length of treatments. It is offering plans of up to 60 months.

For BNPL firms such as Openpay, the healthcare sector offers a lucrative growth opportunity, as repayment plans can be associated with the continued provision of treatment. Therefore, making it in the consumers' interest to meet timely repayments. This can lead to lower default rates for BNPL providers as compared to the one-off retail purchases. Notably, to keep the missed repayments as low as possible, Openpay has linked its BNPL service to specific procedures. The firm is more focused on categories such as dentistry, where patients often have a long-standing relationship with healthcare providers, thereby ensuring they make timely repayments.

In times of rising interest and the surging cost of living, PayNXT360 expects that the demand for BNPL solutions will further increase among consumers from the short-term perspective. Consequently, PayNXT360 expects more firms to forge alliances with education and healthcare providers over the next few quarters, thereby driving the growth of the industry over the next three to four years.

To know more and gain a deeper understanding of the United States BNPL market, click here.