Buy Now, Pay Later:Point of Sale Installment Loans in the US Market and International Perspectives, 4th Edition

CHAPTER 2: MARKET SIZE AND GROWTH

• CONTEXT FOR MARKET PERFORMANCE
• Table 2-1. Annual Growth of Revolving and Non-revolving Credit, 2019-2024 ($ billion)
• Retail Sales
• Household Economics Are Driving Payments Industry
• Figure 2-1. Real Median Household Income and CPI Grocery Index, 2020-2023 (percent)
• Federal Reserve's 50 BP Interest Rate Cut Will Deliver Positive Economic Results
• Payment Preferences Reflect Household Income
• Table 2-2. Share of Payment Instrument Use by Household Income, October 2023 (percent)
• More Consumers Use Card Payments Than Have a Bank Account
• Figure 2-1. Shares of US Consumers Who Adopted Payment Cards and Online Payment Accounts, 2016-2023
• Consumers Feeling Financially Stressed Ignore at Least One Element of Finances
• Optimizing Payment Choices
• STRATEGIC CONSIDERATIONS FOR MARKET PARTICIPANTS
• Banks
• How Can Smaller Institutions Compete?
• Card Networks Are Also Issuer Focused
• Visa as a BNPL Hub for Issuers
• New Vendors Will Enter Market to Bolster Offerings of Smaller Issuers
• Traditional Banks Must Understand New Profitability Models with BNPL
• Partnerships Magnify the Clout of Individual Banks in BNPL Finance
• Merchants
• Traditional Models for Operating in Loyalty/Rewards Programs
• Synchrony Is Pushing Hard into BNPL Finance
• Retail Credit Cards Charge Much Higher Interest Rates than BNPL
• Fintechs
• Fintechs Are Competing Directly and/or Partnering
• Smaller BNPL Finance Fintechs Could be Squeezed Out by Card Networks
• Fintechs Will Continue to Own Customers Who Don't Use Credit Cards
• Partner with Smaller Financial Institutions
• As Fintechs Build Out Product Suites, They May Become Acquisition Targets
• Acceleration of BNPL M&A Activity Signaled by Square's Purchase of Afterpay
• Fintech Virtual Cards Still Subject to Fraud Attempts
• ROBUST AND FRICTIONLESS DIGITAL STRATEGY IS ESSENTIAL
• Consumers Research and Shop Via Mobile, Even if They Buy In-Store
• M-commerce Leading Channel for E-commerce
• Table 2-3. Mobile is the Lead Channel for E-commerce in the US, 2021 - 2023, Q2 2024 (percent)
• Emphasis on Responsible Lending
• Fintechs and Card Issuers Using Up Lines of Credit Risk Regulatory Scrutiny
• Use of Credit Card LOCs in Regulators' Sights and May Hurt Consumers' Credit Scores
• BNPL Fintechs Focus on Risk Minimization
• Collateralization and Repayment Rewards Hold Down Losses
• Diverse Strategies Based on Credit Segmentation
• Credit Card Ownership Will Define Much of BNPL Finance
• Most Credit Card and Bank BNPL Loans Tap Line of Credit
• Using Up LOCs for Installment Loans Cannibalizes Credit Card Receivables
• Affirm's Model Merits Closer Scrutiny
• ACCELERATING BNPL GROWTH
• The Morphing of Installment Loans

CHAPTER 3: US INDUSTRY CONTEXT

• THE CONSUMER CREDIT MARKET BEFORE BNPL INSTALLMENT FINANCE
• Finance Companies and Credit Card/Store Card Lines of Credit
• Traditional Lenders Shaped Consumer Finance for Decades
• Even Among Traditional Providers, Innovation Has Been Ongoing
• Credit Cards Are Not Enough
• THE OPPORTUNITY THAT CREATED BNPL FINANCE
• BNPL Loans Turned Small Dollar Consumer Finance on Its Head
• Great Recession Hit Employment, Income, and Home Values
• Great Recession Shut Off Access to Consumer Credit as Banks Managed Risk
• Loss of Home Equity and Rising Levels of Student Debt Hurt Ability to Build Credit
• Consumers Shifted from Credit Cards to Debit Cards
• Consumers' Receptive to New Ways to Buying and Paying for Purchases
• Changing Payment Preferences Created Opportunity for Fintechs
• New Payment Forms Benefited Merchants as Well
• THE BACKSTORY OF BNPL
• E-Commerce Growth Fueled Merchant Need for Differentiation and Competitive Advantages
• Merchants Needed New Ways to Build Loyalty and Customer Relationships
• Bill Me Later Founded to Meet that Need
• Risk Management Key to Fintech's Success
• Earliest Merchants Experienced Huge Results with BNPL
• PayPal Credit Delivers 15% Lift to Merchants Within Three Months of Offering Service
• Retail Payments Have Become the New Alternative to Marketing Campaigns
• First Fintech BNPL Installment Lenders Targeted Merchants of Higher-Ticket Items
• Proprietary Credit Decisioning Key to Keeping Fees Low and Bypassing Credit Cards
• BNPL Financing Upstreamed in E-Commerce to Larger Market
• Consumers Wanted Installment Loans for Greater Dollar Range of Purchases
• Consumers Demanded BNPLs for Debit Card Sized Transactions
• PayPal Credit Responded to Consumers by Offering 0% Interest on $30+ Purchases
• Fintech Innovation Capitalized on Greater Consumer Demand for Personalization
• Card Products Enhanced Security and Loyalty Programs

CHAPTER 4: BNPL FINANCING IN THE US

• INDUSTRY OUTLOOK
• Moving Forward: Robust 20% CAGR Projected for 2023-2028
• Table 4-1. US BNPL Market, CAGR 2017-2022 and Projections 2023-2028 (% CAGR)
• Table 4-2. US BNPL Market, Projections 2023-2028 ($ billions and % change)
• Rationale for BNPL Projection to
• Strong Alternative to High Interest Credit Cards
• BNPL Financing Benefits from Overall Growth of Digital Commerce
• Table 4-3. E-commerce as a Percentage of Retail Sales, 2019-2024 ($ millions and percent)
• BNPL Benefits from Positive Consumer Experiences
• BNPL Benefits from Demographic Trends
• KEY GROWTH DRIVERS
• New Market Niches, New Player Strategies All Contribute to Growth
• BNPL Finance Addresses Merchant Pain Points
• Lending Model Scalability Seen in New Industry Verticals
• Consumers Think Big Tech Better than Traditional Credit Providers
• Older Consumers Open to Banking with Fintechs
• Fintechs Leverage Consumer Payments to Build Customer Relationships
• New Strategies from Traditional Financial Institutions
• Tapping BNPL Installments to Build B2B Relationships
• BNPL Shopper Rewards
• Figure 4-1. Sezzle Rewards Program
• KEY COMPETITIVE CHALLENGES
• Challenges Dictated by Player's Role in Payment Transaction
• Traditional Lenders Don't Offer What Millennials Want
• As Relationships Move to Fintechs, Traditionals Have Less Data to Compete
• BNPL Is Taking Billions from Banks
• Payment Friction
• Paying Users to Make BNPL More Valuable
• Regulatory Oversight: BNPL Business Models Invite Scrutiny
• Regulatory Issue: Should Fintechs Lending to Consumers be Regulated Like Other Consumer Products
• Australia Now Regulates BNPL as Consumer Credit
• BNPL Providers Have Touted Their Low Risk Lending Processes
• BNPL Credit Increases are Driven by Actual Repayment Patterns, Not One-Off Credit Pulls
• US State Financial Regulators Scrutinizing BNPL
• CFPB Review of BNPL Industry
• 2022 Report Led to New CFPB Guidance for BNPL in
• Holds Placed on Credit Card Lines of Credit
• Holds on Lines of Credit Lower Credit Scores
• Competition Pressures Prices
• Uses of BNPL Installment Moved from Smaller Ticket to Larger Ticket Items
• Growth in Price Range Speaks to Growing Comfort with Product
• Zero-Interest Financing Doesn't Feel Like Taking on Debt
• Consumer Satisfaction with BNPL is Rising
• Consumers Appreciate BNPL as Separate Line of Credit from Their Credit Cards
• Consumers Don't Have to Touch Their Credit Card Lines of Credit
• A Single Charge Can Lower a Credit Score by Over 100 Points
• Credit Card Networks May Find Resistance to Use of Lines of Credit
• Consumers Value Ability to Spread Out Payments

CHAPTER 5: THE US BNPL CUSTOMER

• CONVENIENCE DRIVES USE OF BNPL
• Table 5-1. Top Reasons for Using BNPL Loans, 2023 (percent)
• Table 5-2. Family Income, Education and Race/Ethnicity of BNPL Users, 2024 (percent)
• BNPL Awareness Tracks Increase in Usage
• Figure 5-1. BNPL Awareness and Use, 2021-2023 (percent)
• Overall Usage and Key Cohorts
• Table 5-3. How Gen Z and Millennial Shoppers Use BNPL, 2023 (percent)
• What Buy Now, Pay Later Products Are Consumers Buying?
• Average Size of BNPL Balances by Generation
• BNPL Purchase Categories
• Table 5-4. BNPL Purchasing Categories, 2023-2024 (percent)

CHAPTER 6: THE US BNPL FINANCING MERCHANT

• SIGNIFICANT BENEFITS TO MERCHANTS
• Consumers Demanding BNPL
• Merchant Set-ups to Offer BNPL
• Shop Pay Installments Lift Order Values Up to 50%
• Best Buy Offers Installment Loans
• Each Type of Merchant Has Unique BNPL Finance Terms and Results
• Airlines
• Airlines Support BNPL
• Airlines Balk at Paying $20 Billion to Process Payments
• GDSs Connect All Travel Industry Sectors
• That Interconnectivity Could Be Gateway to Circumventing Some Card Fees
• The Complexity of Travel Industry Is a Challenge for BNPL
• New Installment Finance Fintechs Are Entering Travel Industry
• Consumers Spend $841.5 Billion on Airfare
• Affirm's Travel Installment Financing Has Yielded Huge Results for Merchants
• Travel Site Checkout Drop-Off Rate Is 87%
• Upgrade Partners with Individual Airlines, Tour Operators and Cruise Lines
• Fintechs
• Huge Number of Merchants Makes US Prime Market for BNPL Finance

CHAPTER 7: US DYNAMICS: TRADITIONAL PLAYERS

• US BANKS AND CARD ISSUERS JOIN BNPL FINANCE MARKET
• US Banks
• Only 5% of Banks Currently Interested in BNPL Finance
• Banks Continuing to Track BNPL Finance and May Jump in Eventually
• Bankers Fear Payments Fintechs Most
• Bank: Citizens Financial
• Bank: Wells Fargo
• Card Issuer: Citibank
• Flex is Central to Growth of Citi Retail Banking
• Citibank Offers Two Ways to Tap Citibank's Lines of Credit: Flex Loan and Flex Pay
• Flex Loan Activity Broken Out Separately on Monthly Statements
• Flex Loan Is Alternative to Personal Loan
• Flex Pay Is Post-Purchase Installment Loan
• In Australia, Citibank's BNPL SPOT Sold and Repositioned as NAB's Pay Later
• Card Issuer: JPMorgan Chase
• Chase Targeting Unused Credit Lines
• My Chase Plan Taps Unused Credit Lines on its Chase Branded Cards
• My Chase Loan Taps Unused Credit Lines its Bank Customers Have with Other Issuers
• Finance Company: Synchrony Financial
• Synchrony Links Private Label Credit Cards to Installment Loans
• Retailers Customize Synchrony's BNPL Finance Offers and Terms
• Merchants Can Offer Traditional Store Card and Virtual Card
• Synchrony Pay Later is its BNPL
• Synchrony Binds PLCC and BNPL
• CARD NETWORKS ENTER BNPL FINANCE MARKET
• Industry Context
• Visa
• Visa Betting that BNPL Is Foundational Method of Payment
• Visa Offering Issuers and Merchants Pre- and Post- Purchase BNPL Financing
• BNPL Pre-Purchase Is Product Differentiator
• Merchants Do Not Need to Align with Multiple Financing Partners
• BNPL Financing Taps Cardholder's Credit Line
• American Express
• Pay It Plan It Addresses Cardholders' Actual Behaviors
• Millennials Are 50% of Participants in Program
• BNPL Finance Paired with Paying for Individual Transactions and Less Revolving Credit
• Mastercard
• Mastercard Installments Gaining Momentum
• Figure 7-1. Used BNPL More This Year Than Last, 2024 (percent)
• Mastercard Issuers Can Offer BNPL at In-Store and Digital POS
• Virgin Money Slyce

CHAPTER 8: US DYNAMICS: FINTECHS

• FINTECHS DRIVE INNOVATION IN US BNPL FINANCE
• Fintechs Targeting Consumers With/Without Credit
• Leading Fintechs in BNPL Finance with Financing Volumes and Options, and Repayment Options
• Table 8-1. Fintech Volumes, Lead Products, and Repayment Methods, Calendar Year 2022 and 2023(volumes in $ billions)
• KLARNA
• Largest BNPL Provider with Highly Fluctuating Market Cap
• Klarna's US Gross Profit Jumped 93% YoY Through H1
• Klarna in the US
• Generative AI Saving Money and Driving Customer Engagement
• Klarna's Number of Active Customers is Stagnant
• Partnerships
• Rewards
• Klarna Offers Consumers Three BNPL Financing Products
• Klarna Reports that its Product Boosts Average Order Value by 68%
• In-App Browser Lets Shoppers Use Klarna Anywhere on the Internet
• PAYPAL BNPL
• PayPal Helps Merchants Grow
• Transaction Volumes and Change at the Top
• PayPal Pay Monthly
• Pay-in-4 was PayPal's Response to Competitors and its Merchant Demands
• AFFIRM
• Affirm Offers Three BNPL Loans
• Figure 8-1. Affirm's GMV by Product, 2023 and 2024 (percent)
• Plastic and Virtual Cards
• Merchants Using Affirm
• Affirm and Amazon
• Affirm and Walmart
• Walmart Launches Its Own BNPL, Competing Against Affirm
• Walmart May Squeeze Out Affirm
• Figure 8-2. One App
• Table 8-2. Affirm's Key Metrics, YoY, Fiscal Year 2022-2024 ($ billions and million consumers)
• Affirm Began as a Payment Option for Subprime Consumers
• Affirm Does Not Accept Credit Cards for Debt Repayment
• Affirm, Shopify and Shop Pay
• Affirm Forecasts Positive Net Income in FY
• APPLE PAY
• Apple Pay Later was Apple's Test for BNPL
• Apple Pay Later Served as Proof of Concept
• Apple Pay's BNPL is Global
• Apple Regulatory Scrutiny in the US
• EU Finds Apple Guilty of Blocking Competitors from Accessing its Users
• Apple Forced to Open its NFC to Competitors in the EU
• Apple Pay BNPL Offered With Klarna and Affirm
• Figure 8-3. Screenshot of Apple Pay and Klarna's Pop-Up Screen in Apple Pay Wallet
• AFTERPAY
• Afterpay Offers a Single, No-Interest Product
• Its "Mall" of Afterpay Stores Is Available Online or Through Its App
• Afterpay Finds That 20% of BNPL Users Say It Is Their Preferred Method of Payment
• Afterpay Survey Finds BNPL is Payment Method of Choice for Unexpected Expenses
• Afterpay Staying a Step Ahead of Australian Regulators
• Late and Missed Payment Fees
• Merchants Willing to Pay a Premium for BNPL Because it Generates Outsized Profits
• Impressive Growth Metrics
• Table 8-4. Afterpay Global Growth 2020-2023 (US $ billion)
• Acquisition by Square for $29 Billion
• AMAZON
• Amazon's BNPL Options
• Amazon's Visa Credit Card BNPL
• Amazon's Store Credit Card BNPL
• Loan Details
• SEZZLE
• Sezzle Building Key Bank Partnership in
• Sezzle's Spiel: 4 Interest-free Payments Over 6 Weeks
• Sezzle's 2023 Growth
• Sezzle Product Introductions
• ZIP
• Founded in Australia, Zip Entered the US Through Acquisition
• Table 8-5. Key Metrics for Zip Co. 2020-2024
• Zip's Revenue Model
• Stripe and Zip

CHAPTER 9: INTERNATIONAL MARKET DYNAMICS

• GLOBAL SNAPSHOT
• Overview
• European Union
• Latin America
• China
• WESTERN EUROPE
• Consumer Credit and Payment Preferences
• BNPL Is Growing Twice as Fast as Credit Cards
• BNPL Growth Is Fueled by Consumers' Desire for Payment Choices
• Having Payment Options Informs UK Consumers' Choice of Merchants
• Europeans Use Wide Range of E-Commerce Payment Options
• Finally, Germany Moving to Credit Cards and BNPL Finance
• Benefits from E-Commerce and Highly Developed BNPL Tech
• European Banks and Fintechs Are Carving Out Niches in BNPL Finance
• BRAZIL
• Largest Latin American Marketplace
• Robust Installment Loan Ecosystem
• More Internet and More Smartphones
• Previously, Consumers Left Stack of Postdated Checks as Installments
• Brazilian Retailers Advertised Installment Price, Not Full Retail Price
• "Interest-Free" Pricing Masks Large Built-In Markups
• Installments Used in 80% of Brazilian E-Commerce Purchases
• Merchants Receive Partial Payment with Each Payment the Consumer Makes
• In Other Markets, Fintechs Collect Shopper Payments
• Biggest E-commerce Categories Are Electronics and Travel
• Daunting Import Tariffs Act to Depress E-Commerce Volumes
• MEXICO
• Mexico's E-Commerce Reaches $38.1 Billion in
• Debit Cards Are Not Authorized for Digital Commerce
• Country's Largest C-Store Lets Consumers Buy Online and Pay Cash In-Store
• Installment Finance Was Originally Used by Large Ticket Merchants
• Banks Copied Success with Installment Payments for Credit Cards
• CHINA
• Chinese Millennials Are Online, Shopping, and Not Using Network Branded Credit Cards
• Tighter Regulations Temper Chinese BNPL
• Tencent's BNPL is Fen Fu
• Tencent's Fen Fu Monetizes BNPL with Late Fees and Service Fees
• Alibaba
• Alipay (subsidiary of Ant Financial, Mostly Owned by Alibaba) Is Developing Installment Finance with Huabei