“BNPL is becoming as much an integral part of the service in an online store as delivery”
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BNPL is the fastest growing payment instrument in the world. In 2023, more than 450 million people paid for goods or services in this way, and the total volume of transactions by the end of the year will exceed $330 billion.
Moreover, it is developing countries that are becoming key drivers of growth, where online sales are growing at a faster rate than in the US, EU and UK, where the largest international services were initially launched.
The main prerequisites for the development of BNPL were the cost of living crisis and unprecedentedly high inflation in 2022-2023, as well as the transition to a lean consumption model, part of which is, among other things, an analysis of additional costs associated with the use of borrowed funds.
A high level of debt and a low credit rating limit the ability to raise funds and increase the cost of loans. As a result, BNPL, which almost everywhere remains characterized by softer regulation (unlike banks, microfinance organizations, credit cooperatives, and even Peer-to-Peer Lending Platforms) and the absence of information in the borrower’s credit history, is becoming, among other things, a tool for increasing the flexibility of budget management households.
The popularity of BNPL is especially high among young buyers, who are primarily attracted by the ease of access to the product and its lower cost compared to credit products. At the same time, it is important to remember that the explosive growth of the BNPL market in the future creates the basis for additional risks associated with increased debt.
The most promising fintech direction for the development of BNPL seems to be integration into large ecosystems: for example, Apple Wallet and Apple Pay Later, a partnership project between Apple and Affirm to provide BNPL services through Apple Pay. In the US, Amazon is also developing a partnership with Affirm to offer BNPL on its platform.
In Russia, where the ecosystems of, for example, Yandex and Sberbank cover almost the entire solvent population of the country, BNPL can become a serious competitive advantage for other ecosystem products. The integration of BNPL functions into the functionality of banking applications is also promising.
The capacity of the BNPL market in the Russian Federation in 2022 exceeded 30 billion rubles, the largest players were Tinkoff (Shares), Sberbank (Pay in installments), Alfa-Bank (Share), Yandex (Split) ), “Parts” (Sovcombank), “Ozon Installment”.
The BNPL service actually replaces POS lending in online retail. The example of Kaspi in Kazakhstan (Kaspi installment is not pure BNPL, but uses some elements) shows that the instrument can take up to 20% of the consumer lending market, with consumers often refusing to purchase durable goods if installment is not provided.
That is, BNPL becomes the same integral element of the service in an online store or marketplace as, say, delivery.
Given the 11 p.p. growth in the share of marketplaces in the online sales market in Russia, to 59%, in 2023 we expect the BNPL market in Russia to at least triple and reach the level of 90-100 billion rubles. The key issue, however, is the possible strengthening of regulation. Although, in my opinion, one should hardly expect any decisions from the Central Bank on this issue before 2025.
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