Buy Now Pay Later, top trends and players across European countries

If you have purchased anything online, there is a good chance that you have seen another option popping up besides credit and debit cards or services like PayPal on the checkout page: Buy Now Pay Later (BNPL). The attraction of delaying all or part of your payment is understandable, allowing you to spread out the cost of your purchase and make it more manageable.

This article shares key BNPL trends in Europe, as well as interesting information on big players in this geographical area and market. The players covering most of the BNPL service market in Europe include Klarna, PayPal Credit and AfterPay.

The Buy Now Pay Later transaction system has a projected growth rate of over 54% until March 2023. The BNPL payment adoption is expected to grow steadily over the forecast period, recording a CAGR of 30.8% between 2022 and 2028.

BNPL transactions essentially act as loans with lower interest rates or interest free if paid within the timeframe of the provider, which appeals to people who have no credit history and 45% of BNPL users say that they use BNPL services to make purchases that would otherwise not be feasible. BNPL users also use financing services to:

o??Avoid credit card interest (36%)

o??Borrow without a credit check (24%)

o??Guard personal data (20%)

o??Avoid using credit card (19%) (Credits: Exploding topics)

Many European countries have as a result grown very fond of this transaction system as seen on the chart below, where 13 out of the top 30 countries are European. (More on that in the “Trends in Europe” section)

BNPL statistics

Credits: Exploding topics)

As mentioned in the introduction and seen on the graph here, BNPL has grown a lot in popularity over the last few years (with a projected average 30,8% growth rate until 2030). Customer statistics show that about 25% of the online shoppers use this service at least once

Statistics also show that most of the European users are between the ages of 18-30. The older generations tend to in general be more cautious with online purchases, but there has been an increase in the number of purchases from people over 50 as well.

Most of the online impulsive purchases on non-essential items are nowadays done using BNPL options with clothes, shoes, accessories and electronics topping the list. Most customers say that it is a very helpful option to have, as it gives them flexibility in paying for the articles they want to order.

(Credits: Payment and Banking)

Trends in Europe

Image credits: Seon

Sweden is the most BNPL-affined country in Europe, as BNPL services account for 25% of all the ecommerce transactions. Germany follows with 20% of its overall ecommerce transactions and so on.

For 2022 it is predicted that the UK, France, Italy and Spain will also increase the number of online purchases using BNPL services and the same could be said for the top 6 countries as well, meaning that Europe will short to mid-term have a bigger percentage of the general BNPL transactions.

Klarna is the most popular BNPL service provider in Europe with approximately 147 million active users followed by Affirm with 11.2 million active users and Afterpay with 10.5 million. Despite their short term lead, Klarna will need to stay abreast of key developments in the BNPL space. It is up against some big tech companies like PayPal and Amazon who all recently launched 0% ‘installment’ payment options.

Uncertainties surrounding the BNPL world

One of the BNPL giants has announced that they laid off 10% of their employees this year as a result of the triple amount of loses from this year compared to the same period in 2021. It’s a stark reminder of how exposed one of investors’ — and consumers’ — most beloved innovations of the past decade are to macroeconomic headwinds. The first issue dealt to BNPL companies are the rising interest rates – which was their biggest selling point to customers. Eurostat’s latest data shows that retail spending in Europe has been dropping at a sharper rate than economists expected. That lead to the second issue - a slowdown in consumer spending. (Source: Sifted)

New BNPL regulations in Europe

The EU Council has agreed to revise of the consumer credit directive (CDD), with new rules that could reduce transparency requirements for BNPL providers. The existing CCD, introduced in 2008, covers the most consumer loans, ranging in from 200 euros to 75,000 euros in value.

However, loans under 200 euros fall outside its scope, which means most BNPL loans aren’t covered by existing rules. The proposed amendment would change this by including BNPL schemes, payday loans, short-term overdrafts, interest-free credits and loans that are provided by crowd-lending platforms.

The UK regulator made it clear that while there were many areas where the lenders could improve, they could potentially fail while still “remaining open and continuing to provide vital banking services to the economy.” There are now plans to regulate the BNPL space, making affordability checks on customers mandatory.

The results and banks’ roles

The success that fintech companies have had, has led to Credit Card providers and banks to also start offering better deals for their customers in terms of loans. The described market trends (adoption of BNPL service across customer groups, regulatory headwind for BNPL-only players, need for customer segmentation to keep costs low) play in favour of European banks.

Banks still enjoy strong relationships with their customers of all ages and, crucially, they are trusted by those customers. They are accustomed to regulations that must be met and have knowledge of their customers' credit histories across multiple product lines or have at least proven processes for credit scoring in place.

On the other hand, fintech companies are investing millions each year to acquire new customers. In some cases, this race to acquire customers is significantly pressuring their ability to operate profitably. Long term the market will swing in favour of well managed and well capitalized incumbents with pre-existing access to millions of customers, so it would be fair game for both.

Conclusion

BNPL products give financial stability in monthly expenses as they allow customers to spread large costs over a (preferred) duration and enable the payment of sudden expenses without having to drain their savings. This requires are certain level of flexibility of the underlying BNPL product, so that customers can adjust it to their needs and financial background. That leads to a high growth projection rate in Europe until 2030. However, with the new regulations, banks will gain more market power so it remains to be seen how the market will divide between the different providers.

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This article is part of a series on BNPL trends around the world. Other regions will follow up.