The Future of the BNPL Market

Photo of Paweł Stężycki

Paweł Stężycki

Updated Oct 18, 2023 • 10 min read
What’s next for BNPL fintechs

Buy now, pay later has become the world's fastest-growing e-commerce payment method, but many wonder what's next for BNPL fintechs.

The global BNPL market is expected to reach $20.4 billion by 2028 and over $1 trillion in annual gross merchandise volume (GMV) by 2025.

Once a niche form of credit, BNPL has exploded during the pandemic and has been dubbed by some as "the future of finance for Millennials." Indeed, the revolution is being driven by Millennials and Gen Z who make up 75% of BNPL customers. What's contributing to BNPL's still-growing popularity is the need for flexible payment options and an aversion to credit cards.

BNPL's funding is in the billions. A recent investment in Klarna, led by SoftBank's Vision Fund 2, has cemented the Swedish startup's status as Europe's top fintech unicorn at a $46 billion valuation. Shares of Affirm soared 98% in its Nasdaq IPO earlier this year, and Square announced a few weeks ago that it would spend $29 billion to acquire Afterpay.

The number of users is growing every day and exceeds 45 million in the US alone. New BNPL players are born every month.

Today, there are more than 170 startups competing in the BNPL space, so the market is crowded.

This growth cannot be ignored, but the question is: What's next?

BNPL disrupted the market

The concept of deferred payments is not new. Installment payments have long been a solution for those who could not afford to pay with cash. Credit cards — one of the most successful financial products of the 20th century, are a buy now, pay later tool if you think of it. User expectations have shifted over the last few years, fueled by the convenience of digital experience. For customers, especially younger generations brought up in a fully digital environment, credit card services may be an outdated concept. This made room for disruption — and smaller, more agile competitors entered the market, offering cheaper, and more accessible and innovative products.

Today's biggest BNPL players did not just enter the market yesterday. Klarna launched in 2005, Affirm in 2012, Zip in 2013, and Afterpay in 2014. Initially, they targeted customers who were unattractive to the incumbents, but with the COVID-19 pandemic and nationwide lockdowns, BNPL took wing.

People who were locked up at home turned to online shopping, and soon e-commerce numbers soared. Buy now, pay later had its day, and with further iterations and product improvements, BNPL startups were able to rise up and take a bigger market share from traditional financial institutions.

By 2020, BNPL accounted for 2.1% — or about $97 billion — of global e-commerce transactions. This figure is expected to double to 4.2% by 2024.

BNPL solutions are often considered as no-interest credit solutions that do not require credit checks. This is often the case but far from a universal rule. In fact, business models vary a lot, especially with little regulation in place in a number of locations. With strong funding and investors looking for returns, we must see lots of innovation from BNPL companies in upcoming months.

So, will they replace credit cards? What position will they take in the payments market? Let us look at possible scenarios.

What’s next for BNPL?

Strategic partnerships and consolidation

An abundance of BNPL fintechs emerging means one thing is certain: some will fall. Most BNPL providers rely on income from the transaction fees they charge retailers, who have an incentive to agree to this as it often leads to higher average order value and better conversion rates.

According to research, 42% of Gen Z and 69% of Millennials are more likely to shop if a BNPL service is offered, and nearly half of them would not buy from a retailer that did not offer BNPL payment options. Yet, the average purchase value of a Klarna transaction in the UK is just $104. This means BNPL fintechs need to increase their gross merchandise value and achieve economies of scale to survive. They also need to have enough cash to cover any losses.

What is very predictable is market consolidation and strategic partnerships with high-value retailers — like Affirm and Amazon, and Klarna and Global-e. Both deals will allow BNPL to integrate products at checkout and expand product distribution by getting access to thousands of active sellers. In return, retailers will get a new method to improve their sales. This pureplay also means that whoever secures the largest number of quality merchants first will extend their advantage over the others.

Right now, PayPal is leading the way with its in-house BNPL solution.

In the US, 80 of the top 100 retailers already offer PayPal as a payment option to their customers, and nearly 70% of American online shoppers have a PayPal account.

Building on consumer loyalty

As BNPL starts to be considered a commodity, retailers will soon offer more than one BNPL solution (just like paying with different credit cards). As a result, fintechs will need to expand their product offerings to win not only merchant loyalty, but consumer loyalty as well. At the same time, strong loyalty delivers more cross-sell opportunities, especially to companies with a good portfolio of financial and insurance products.

This will all lead to more value-added services and an expanding scope of personal finance services. We will see BNPL adding discounts, shopping recommendations, spending analytics, virtual cards, insurance, and daily banking products. Afterpay has already launched in-app ads and Klarna offers price alerts for merchandise that clients hope to grab at a better price. In case you wonder if investment products are on the table, here is the news — PayPal and Square are already into cryptocurrencies, and Affirm’s CEO, Max Levchin, said his company will follow. I wouldn't be surprised to see big BNPL brands announcing wealth management projects sometime soon.

On the other hand, Klarna was on a shopping spree in 2021 to flesh out the services it provides to merchants and consumers. The Swedish company acquired Hero — a social shopping platform for e-commerce, Stocard — a loyalty card app, Toplooks — an AI-driven tool for creating shoppable content, and APPRL — an influencer marketing platform. Merchant loyalty is also something to build upon.

Regulations and competition

So far regulators have allowed quite a lot of freedom for BNPL companies, especially in comparison to credit cards. As the BNPL market grows, this is bound to change. There are rising concerns that some users can fall into a spiral of debt. I haven't seen any thorough and comprehensive research so far, but the media shout out a number of potential threats. Almost half of the users opt for BNPL because the purchase would otherwise not fit into their budget. According to other research, nearly 40% of Americans who use BNPL services say they have fallen behind on payments at least once. No matter what the scale of real the problem will be, public opinion is already putting pressure on lawmakers. With that, we will see more control being put on BNPL products.

Finally, there are still some strong, long-established players in the game. The low barriers to entry mean that the major providers (such as Amazon) can offer their own BNPL options at checkout. Banks themselves are also starting to include BNPL in their portfolios — JP Morgan Chase has the option to pay for purchases over several months at 0% interest and a low monthly fee, and Goldman Sachs has just announced its acquisition of GreenSky — a fintech platform for home improvement loans.

Credit card issuers and neobanks are following suit. Mastercard will offer its own buy now, pay later program with interest-free installment payments as an additional option to debit, credit, and prepaid cards. Visa has partnered with Chargeafter to develop a BNPL API called Visa Installments, and neobanks such as Revolut and Monzo have also begun offering BNPL to merchants.


The future of big BNPL fintechs seems assured, although the path to profitability and significant market share in the lending services segment will be a struggle. Klarna, Affirm, and Afterpay will fall back on product innovation and customer relations to bite off big chunks of the developed banking markets. For the time being, the US seems to be the main theatre of this war but more expansion plans are definitely in the pipeline. In the “emerging” markets we will see global companies racing to acquire smaller BNPL players to build a network of acceptance. Once battle dust settles, we are likely to see a handful of global providers and some local leaders in regions where top brands failed to succeed.

If you want to get to know more about the BNPL sector, follow this link to download our buy now, pay later report: "The Evolution and Future of Buy Now Pay Later".

Photo of Paweł Stężycki

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Paweł Stężycki

Former Senior Fintech Innovation Consultant at Netguru

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