Inquiring if the "buy now, pay later" payment method could tap into e-commerce growth opportunities in developing countries.
Amid the surge in digital payments brought about by the pandemic, the "buy now, pay later" (BNPL) model has emerged as a rapidly expanding sector in consumer finance, particularly in developing countries.
BNPL services offer short-term loans at the point of sale, enabling consumers to repay in installments. These services often charge minimal or no interest, making a profit through transaction fees paid by retailers. The flexibility of BNPL has fueled sales and customer conversions, making it an attractive option for both shoppers and retailers.
In June 2022, Apple announced its entry into the BNPL market, following the footsteps of start-ups such as Sweden's Klarna and US-based Affirm. PayPal had also unveiled its BNPL service, Pay Monthly, around the same time.
Last year, BNPL accounted for a significant portion of global e-commerce spending, amounting to $2 out of every $100 spent online. With an estimated global market value of $125 billion in 2021, BNPL is projected to grow at a compound annual growth rate of 24.9% and reach a staggering $3.9 trillion by 2030.
While economic uncertainties have taken a toll on company valuations, the growth potential of BNPL in developing markets and the adoption of favorable regulatory frameworks are expected to help the sector navigate economic headwinds.
Financial inclusion through BNPL
BNPL services have become a cornerstone in expanding financial access, particularly in markets where traditional credit systems are scarce. By automating the credit approval process and integrating it into the flow of online payments, BNPL allows retailers to tap into markets that are typically underserved by financial institutions.
BNPL's speed and convenience have made it popular among young, tech-savvy consumers who rely on mobile devices for payments. The service often serves as a gateway for first-time online shoppers, offering a low-risk method for making digital purchases.
In addition to powering business-to-consumer transactions, BNPL also offers financing options for services such as healthcare, education, and travel, as well as conventional goods. Some start-ups in emerging markets have also begun focusing on business-to-business lending, giving micro-, small, and medium-sized enterprises (MSMEs) greater access to credit and purchasing power.
Expansion in emerging markets
The shift towards digital payments has accelerated in emerging markets, with the share of adults making or receiving digital payments increasing from 35% in 2014 to 57% in 2021, according to the World Bank.
Regions like Latin America have witnessed rapid growth in e-commerce, with online retail sales expanding by 37% in 2020. Asia-Pacific countries, such as Indonesia, are also seeing a surge in BNPL adoption due to the convenience and flexibility it offers.
The BNPL market in sub-Saharan Africa is largely untapped, but local players have begun expanding their services in cash-dependent economies. Countries like Kenya and Nigeria are starting to see increased adoption of BNPL services, with young companies like LipaLater and CredPal attracting significant investments to expand their offerings.
However, regulatory concerns are mounting as BNPL providers face increased competition and mounting interest rates, potentially cutting into profits. As the market matures, international players and regulators are collaborating to establish responsible lending practices and protect consumers from the risks associated with debt accumulation.
Credit: OBG. Enrichment data indicates that the global BNPL market is projected to grow from $44.7 billion in 2025 to $196.0 billion by 2032, with a compound annual growth rate of 23.8%. The majority of this growth is expected to occur in emerging markets, where the need for flexible payment options is high and traditional credit systems are often limited. As the sector continues to grow and evolve, regulatory oversight and responsible lending practices will be crucial for ensuring both consumer protection and continued growth.
- The "buy now, pay later" (BNPL) model, recently adopted by tech giants like Apple and PayPal, is expected to grow at a compound annual growth rate of 24.9%, reaching a staggering $3.9 trillion by 2030.
- BNPL services have become a significant player in expanding financial access, particularly in markets where traditional credit systems are scarce.
- The convenience and speed of BNPL have made it popular among young, tech-savvy consumers, serving as a gateway for first-time online shoppers.
- Beyond business-to-consumer transactions, BNPL offers financing options for services such as healthcare, education, travel, and even business-to-business lending for micro-, small, and medium-sized enterprises (MSMEs).
- The shift towards digital payments has accelerated in emerging markets, with regions like Latin America and Asia-Pacific countries, such as Indonesia, seeing a surge in BNPL adoption.
- Local BNPL providers in sub-Saharan Africa, like LipaLater and CredPal, are starting to see increased adoption, especially in cash-dependent economies like Kenya and Nigeria.
- As the BNPL market matures, international players and regulators are collaborating to establish responsible lending practices and protect consumers from the risks associated with debt accumulation.
