Still space to grow in BNPL

  • By Zilla Efrat

The Buy Now Pay Later (BNPL) market may have attracted a host of new players in recent times, but it still offers plenty of opportunities to those involved, attendees of RFi Group’s virtual Australian Banking Innovation Summit 2021 heard yesterday.

Surin Fernando, vice president and head of products and innovation at Mastercard, noted that despite BNPL’s growth, there were still areas that it doesn’t play into.

“BNPL players are only really touching a small fraction of the overall expenditure,” he said.

“We are still thinking of this in terms of how of how retail spend or retail clothing spend actually takes place on BNPL. If you unpack the consumer’s wallet, there is so much more that takes place, such as council bills, strata payments, telco payments and so on.

“There are a number of verticals that are completely untouched or which only represent a very small proportion of overall payment option spend of BNPL. We see that as a huge runway to be on.”

Dion Appel, CEO Australia/ New Zealand at Australian fintech Openpay, said the rise of BNPL had been “a bit of a wakeup call for the banks”.

They were entering this emerging space because they had seen “the big tickets being written”. “They didn’t have their eye on the ball, or they did but didn’t move fast enough,” he said.

But Appel believed that companies like his own had an advantage. “We are pure-play BNPL businesses really shaping the industry. It’s our core business so we will always innovate and differentiate,” he said.

“We have businesses in Australia, the UK and the US. BNPL is a central core product that we can grow into other markets at scale and at pace. And I think that’s what is really exciting.”

Fernando also saw opportunities for entrants that haven’t participated in this space but had large consumer bases, such as traditional large digital platforms or large marketplaces.

They are thinking about BNPL as a value add for their consumers, a revenue line or an extension of their services, he said.

He said Mastercard had seen some phenomenal growth in BNPL demand across the UK, North America and Australia. That’s why it recently announced these as the first markets in which it planned to launch its BNPL program, Mastercard Installments.

But Fernando added that there was also vast opportunity across Asia. “We’ve seen a large number of the digital platforms and players move into that space as an extension of their capabilities,” he said.

“But if you also look at where some of the international large growth stems from, that actually started in Europe and are standard across the European horizon, and are now entering Australia and the North American market.”

So why has BNPL taken off so well in Australia?

“I think that as a starting point, we are going through a fundamental change in consumer behaviour,” said Appel, adding that there was a change in the way consumers viewed debt.

“We [have] a generation that has probably seen previous generations up to their eyeballs in debt and which is starting to look at smarter ways to pay and ultimately, align its payments with the way it earns its income,” he said.

“Being able to split payments and manage cash flow a little bit better over time is something that BNPL has pretty much invented and has been able to champion through all forms of consumerism, be it retail and other verticals like automotive, home improvements, healthcare, memberships, sports, entertainment and so on.”

Myles Redward, CEO and co-founder of Australian payment plan provider Payright, observed that as a concept, the usage and awareness of BNPL now increasingly extended beyond the Millennial demographic.

“It's an increasing societal trend,” he said. “Customers are looking to spread their costs of living and people really like the simplicity and transparency associated with BNPL.”

Redward noted that customer feedback and survey results suggested that BNPL helped customers understand and manage what they spent.

They are using it as a budgeting tool and they also like the technology associated with it, he said.

Compared to credit cards, Appel said BNPL took the pain points out of thinking about what one’s addition repayments were and what the minimum or maximum repayment was required to get the interest free period.

“None of that exists with the product like Openpay. It’s very much around equal repayments over the duration of the plan – start good, finish good,” he said.

The session’s moderator, Kate Wilson, global head, consumer credit, deposits and payments at RFi Group, noted that there had been a rise in customers using multiple BNPL services.

“RFi data shows that 50 per cent of BNPL users have used more than one service,” she said, explaining that this could be because consumers were just trying out the different options available or because different services might meet different needs.

Wilson added that as the market matured, the way customers used BNPL services was going to change.

RFi’s research found as customers become more comfortable using BNPL services, their comfort in using BNPL at higher price points went up because they understood how the model worked, she said.