BNPL will be huge by 2027 for not-so-good reasons

ITEM: Deteriorating macro-economic factors may spell rough times ahead for ordinary people, but it will be great for BNPL (Buy Now, Pay Later) platforms – provided regulators step in to make sure players behave responsibly.

So says a new report from Juniper Research, which forecasts the number of people globally using BNPL solutions to surpass 900 million by 2027, up from 360 million in 2022. Meanwhile, global consumer spending using BNPL platforms will grow from $112 billion this year to $437 billion in 2027.

The latter figure represents a 291% growth rate, which Juniper says will be driven by escalating financial pressures from the rising cost of living, which will increase demand for cheap credit solutions.

Avoiding the debt trap

The big attractions of BNPL are interest-free payment instalments and relatively easy credit checks. However, these also pose what Juniper says is the most significant issue currently facing the BNPL market: the debt trap.

BNPL’s lack of credit checks inevitably means that many consumers are being approved for larger loans than they are actually able to repay.

That’s where regulators come in. Juniper’s forecast takes into account the likelihood that financial regulations covering BNPL will be introduced in several countries. According to Juniper, this should help alleviate this issue, as such regulations are expected to be similar in nature to existing credit services.

Of course, some markets will have softer regs than others. It’s in those markets where BPNL vendors need to act responsibly. Juniper urges them to proactively  clearly communicate all incurred debts promptly to users to minimise repayment default rates if they want their platform to succeed.

“Though the future of the market seems unclear given the plethora of impending regulatory changes, enforcing legislation for eligibility checks will ensure the market develops securely,” says research author Dominique Tetnowski.

Expansion into new verticals needed

The report also srtronly advises BNPL vendors to provide services in alternative verticals to diversify their monetisation opportunities as e-commerce becomes oversaturated with solutions.

For example, Juniper says, the healthcare sector is an emerging opportunity for BPNL vendors, owing to a lower risk of defaulting payments from overspending (at least compared to the e-commerce sector).

“As such, vendors must look to make strategic partnerships with established healthcare providers to offer BNPL services to healthcare users; ensuring successful entry into the market,” the report says.

BNPL faces consolidation risk

Meanwhile, it’s worth noting that the challenging economic outlook that will drive demand for BNPL services could also potentially thin out the playing field, according to a recent Reuters report.

S&P Global Market Intelligence’s 451 Research estimates there are over 100 BNPL firms globally. But for most of them, initial growth was driven by the rise in e-commerce and other digital services during the COVID-19 pandemic.

Now, consumers are spending less, a global recession is looming, and interest rates are rising. And the latter is pushing up funding costs for BNPL firms’, which is squeezing their margins. While Juniper’s forecast for BNPL growth may turn out to be on the mark, there may be fewer players in 2027 than there are now.

Or at the very least, the field of BNPL players in five years won’t include many of the players in operation today.

The Juniper report is here.