What is Going On (Globally) with BNPL?

The Elephant in the Room??

Let's start with the main news story that shifted opinion around the BNPL market recently. We shall try to better understand what happened, argue for the persistence of great opportunities in the space – and then move on to a specific strong market for BNPL, namely Vietnam.??

First, what is it? Buy Now Pay Later is one of the more self-explanatory terms out there. While shopping online, users have the option of getting their desired item on credit and paying through whatever installment plan their BNPL provider offers. In my eyes, BNPL is not (and should not be) a long-term loan nor a high-risk offer to consumers. Rather, it should be thought of as “quick access to credit for small pleasures”. Moreover, separating these “small pleasures” from the big card monopolies may prove helpful to consumers in the long run.??

Klarna, the global leader in the generational shift away from credit cards, announced the closing of a new $800m financing at a $6.7bn post-money valuation a few months ago. The financing was in strong contrast to a valuation of $45.6 billion in 2021, yet it also represented a strong continued support from both existing and new investors and will primarily be used to expand Klarna’s leading market position in the United States.???

Michael M. , Partner at Sequoia, commented: “The shift in Klarna’s valuation is entirely due to investors suddenly voting in the opposite manner to the way they voted for the past few years. The irony is that Klarna’s business, its position in various markets and its popularity with consumers and merchants are all stronger than at any time since Sequoia first invested in 2010. Eventually, after investors emerge from their bunkers, the stocks of Klarna and other first-rate companies will receive the attention they deserve.”??

The fresh investment in Klarna occurred during possibly the worst set of circumstances to afflict stock markets since World War II: high inflation, rising interest rates, mounting fears of a recession, the aftereffects of the first global pandemic since 1918, strains on commerce caused by supply chain disruptions, rising gas prices, and, especially in Europe, the dislocations caused by the war in Ukraine. ?

Now let's look into why existing leading investors decided to keep backing Klarna:???

• In the US Klarna has gone from nothing to becoming the market leader, with close to 30m users, 60% brand awareness, and 30 of the top 100 US retailers – more than Affirm and Afterpay combined. Volumes more than tripled YoY from 2020-2021.??
• Klarna has launched 11 new markets during this time period, among them France, Italy, Spain, Canada and Australia. Making it the number one choice for global brands across the world, covering over 20 markets.??
• Globally it is now larger than Amex with 150m users worldwide, users hitting Klarna 2 million times a day and app downloads in excess of 60m.??
• Volume has grown in the UK by close to 8x since 2018, reaching 18m consumers from just 4m in 2018 representing a 333% increase, with 22,000 retail partners.???
• The established European markets are making $1bn in gross profit. This is akin to putting $100m back into the pockets of consumers by cutting fees over the last 12 months.??

The way to simplify all the above:???

1. Raising at crazy valuations can be bad in global market downturns.??
2. At the right valuation top investors back great businesses; this for the case of Sequoia, which has been with Klarna since 2010 and therefore saw overall success in the recent round.??

It is worth noting that often people confuse BNPL with long-term loans, when in reality Klarna AOV (Average Order Value) on BNPL products is about $160.? ?

The Vietnam Opportunity??

Demographic:???

• 100M people???
• Median age 32 years old??
• Cash transactions 70%???
• Retail market size: $170 billion???
• 90% of merchants lack great BNPL technology???

Only 4% of the Vietnamese population owns a credit card, while in neighboring countries this rate is usually higher: 10% for Thailand, 21% for Malaysia, 49% for Singapore, and 68% for Japan.??

Banking costs are too high for people, especially in rural areas, and the lack of credit scoring capacity for the majority of ordinary customers makes much of the populace unfamiliar with credit cards and opening a bank account.??

As a result, two-thirds of Vietnamese consumers remained unbanked.??

Vietnam will achieve the highest growth in the digital economy in Southeast Asia between 2022 and 2025, a report by Google, Temasek and Bain & Company has forecast. It will grow at 31% followed by the Philippines with 20% and Indonesia with 19%, according to e-Conomy SEA 2022.??

Vietnam’s digital gross merchandise volume is likely to reach US$23 billion this year, third highest in the region behind Indonesia’s $77 billion and Thailand’s $33 billion. But with the rapid growth projected, it is expected to double by 2025 to $49 billion.??

The main contributors to Vietnam’s digital economy this year are e-commerce ($14 billion) online media ($4.3 billion) and transport and food ($3 billion).??

“Vietnam’s high-quality workforce in the technology sector and the increasing penetration of digital services in urban and rural areas promise a strong foundation for the digital growth of the country,” Stephanie Davis, vice president of Google Southeast Asia, said.??

Vietnam is also likely to attract the most investors in the 2025-30 period, according to a survey of venture capital investors in the third quarter by Bain & Company, with 83% of them expecting an increase in deal activity compared to now.??

The BNPL payment adoption is expected to grow steadily over the forecast period, recording a CAGR of 45.2% during 2022-2028. The BNPL Gross Merchandise Value in the country will increase from US$ 496.4 million in 2021 to reach US$ 10528.1 million by 2028.??

BNPL products are gaining increasing traction among consumers in Vietnam as both startups as well as established corporations bet big on it. From local BNPL platforms to regional big players, the deferred payment market is expected to gain widespread adoption in the country.??

While the absence of specific BNPL regulations in Vietnam continues to pose certain risks, the adoption of BNPL schemes has accelerated over the last four to eight quarters. ?

What will make the difference????

1. BNPL providers who operate under a bank license???
2. Data-driven risk assessment???
3. Contained default rate and healthy underwritings???
4. Education for consumers and market actors???

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About Ree-Pay??

Ree-Pay is a fintech company offering Buy Now Pay Later (BNPL) technology and services. On a mission to provide great customer experiences in retail and e-commerce, Ree-Pay was? founded in 2020 in Ho Chi Minh City, Vietnam. Ree-Pay already provides state-of-the-art technology and shopping to leading Vietnamese retailers and financial organizations, including Momo, Haravan, Maison, Banks, and many others.????