PayPal leads the global BNPL market on the back of strong growth achieved in Q3 2022

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The buy now pay later (BNPL) market was all rage when the pandemic forced consumers to look for alternative payment methods. Giving consumers more purchasing power and supplementing their expenses at zero cost, the BNPL industry recorded robust growth in 2020 and 2021. Notably, the low-interest period also assisted the market growth. However, the interest rate hikes announced by central banks and the resulting funding winter in 2022, meant that BNPL services were no longer cheap to offer to consumers. The situation has been further worsened by stringent regulatory approach adopted by authorities around the world. 

However, even during the funding winter and the growing regulatory distress, BNPL firms have continued to witness strong demand for their short-term loan products. For instance,

• PayPal, one of the leading BNPL providers, has recorded strong growth in volume in Q3 2022, and therefore, claimed the top spot in the global BNPL industry. Notably, the firm processed nearly US$5 billion in volume, representing a growth of 157% year over year. Ever since the firm launched its BNPL services, more than 25 million consumers have used the payment method approximately 150 million times. The robust merchant network of 280,000 offering the payment method at checkout has allowed the firm to record strong growth.

As inflation continues to plague the monthly budget of consumers around the world, shoppers are seeking any sort of monetary relief possible. This has become the single largest factor that is driving the demand for BNPL services among shoppers globally. Like PayPal, Affirm, another leading player in the segment, also reported strong BNPL numbers in Q3 2022. For instance,

• In Q3 2022, the firm reported a growth of 62% year over year in gross merchandise value. Furthermore, the platform also reported a strong surge in its active users. At end of Q3 2022, Affirm had a user base of 14.7 million, representing a growth of 69% year over year. Like PayPal, Affirm also had a strong merchant network of 245,000 at the end of September 2022. In the United States, one of its leading growth markets, Affirm is approaching 2% of all e-commerce spending.

The numbers reported by these two BNPL firms clearly indicate the demand for BNPL is strong among consumers and the trend will further continue over the next few quarters, as inflation continues to threaten the monthly budget of shoppers globally.

Among the many factors that have driven the growth in transaction volume for PayPal and Affirm are their growing active customer and merchant base. Furthermore, the shift in consumer spending habits, including spending on travel and everyday purchases, is driving the volumes for BNPL providers. To tap into consumer spending habits and drive their BNPL transaction volume, firms are forging alliances with travel partners. For instance,

• In November 2022, Afterpay, another leading global BNPL firm based in Australia, announced that the firm has entered into a strategic collaboration with Expedia, the global online travel booking platform. Under the partnership, Afterpay will allow its users to book flights and hotels on Expedia using the BNPL payment method.

In Australia, home to many global players including Afterpay and Zip, the BNPL sector is recording strong growth. While the sector continues to experience strong demand and adoption among consumers, talks about BNPL regulations are also growing in the industry. For instance,

• In November 2022, the government proposed three options to BNPL providers. The first option suggested by the government allows firms to self-regulate while conducting stringent affordability tests. In the second option, the government proposed to bring the BNPL industry under the Credit Act. It means that providers will have to obtain a credit license to offer services. In the third option, firms will be fully regulated under the Credit Act, meaning they will have to adhere to the same responsible lending standards as that of credit card companies in Australia.

The government has asked BNPL providers to offer their input on all these options to better regulate the industry in the country. PayPal, which is also operational in Australia, will have to adhere to the regulatory standards as implemented by the government going forward. While regulatory activities are expected to gain further momentum over the next few quarters, the industry is projected to experience robust demand as well.

In Q4 2022, all these BNPL providers are expected to record further growth in their transaction volume and value on the back of year-end travel and holiday spending. From clothing to electronics, shoes, and travel tickets, consumers are looking to fund all types of purchases through BNPL spending. Notably, the latest financial performance of BNPL providers such as PayPal and Affirm provides hope that the BNPL business model can be profitable over the next three to four years, provided the fact that BNPL firms continue to adopt a responsible lending approach, which will ultimately assist them to reduce their default rates.

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