Buy now pay later (BNPL) is the fastest-growing online payment method in the UK. With a market worth of £24.6bn, investors are realising how much potential BNPL companies have. Just earlier this week has Zilch raised $80 million, hitting a $500 million valuation.
However, Zilch is not unique in this regard. Investment in BNPL is gaining momentum as people seek alternative methods of financing without relying on credit, a trend exacerbated by the coronavirus pandemic.
So, what’s making investors cotton on the BNPL trend?
- Untapped market
BNPL is expected to reach 10% of all eCommerce payments in the UK by 2024, equal to £26.4bn, presenting providers with a huge opportunity to capture an untapped market. The ONS cites that 87% of UK adults shopped online in 2020 and 5 million used some form of BNPL last year, numbers that are expected to grow year on year. - Consumers crave flexibility
Research shows that consumers seek affordability, predictability and transparency. They also say that payment flexibility helps them manage their finances. BNPL is becoming such an important factor in consumer decision making that more than 9.5 million UK consumers say that they actively avoid buying from retailers that don’t offer BNPL as an option. - A competitive field
It seems obvious: the number of BNPL providers in the UK is rapidly growing. The likes of ClearPay, Klarna and Laybuy are all benefiting from consumer appetite for credit 2.0 and money influx from investors. Even payments giants like PayPal are entering the fray with their own solutions like Pay in 3 to remain competitive as consumers demand more flexibility and options in the digital economy. As more and more players emerge, setting themselves apart from the crowd will be increasingly important to carve out a customer base. - Beyond retail
While retail remains the key category for BNPL, some companies are starting to expand into other sectors as well. Only last month did we see Butter, a BNPL company focused on shopping and travel, raise £15.8 million, showing that BNPL has the potential to eat into a much larger part of the economy than only retail.
Underpinned by its market size, consumer attitudes, competitive landscape and the capacity to expand to other sectors, what’s certain is that BNPL is likely to bag more investment than any other FinTech category, as it continues to support consumers in responsible spending.
