The BNPL market continues its rapid boil as Affirm stock climbed 22% last week. There is no question that consumers are flocking to BNPL as a payment method in record numbers and Affirm’s recent deals with Shopify and Amazon are fueling rapid growth with volume doubling last quarter to $2.5B, with a projection of $12.6B next year. Despite its aggressive growth, Affirm posted a net loss of $128.2M for the same period, a clear indicator of the turf battles waging in the nascent BNPL market as a dozen or more strong competitors vie to acquire both merchant relationships and new consumers.
What’s less certain right now is the long term outlook for the BNPL market as the market matures and the growth flattens. While BNPL is expected to remain popular with consumers, is it driving net sales gains for retailers, or just shifting consumers over to a new payment type? If an economic shift causes losses to spike, will the resulting business model still offer a compelling value proposition to both merchants and consumers?
Once known as “layaway” plans, installment payments have a long history of enabling buyers whose credit profile wouldn’t support a revolving account. A key difference between legacy layaway plans and modern BNPL options is that with layaway, the consumer didn’t get the merchandise until all the payments were made, and with BNPL the product ships along with the first payment. Stay tuned to see how long the music keeps playing and who, if anybody, is left standing when it stops.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group
