Last year, it was predicted that by 2027 Buy Now Pay Later (BNPL) users will exceed 900 million.

With that in mind, Big Tech breaking into the space was always expected and acts as a catalyst for adoption. Apple recently introduced the ‘Apple pay later’ option in the US, acting as an alternative payment method that allows customers to spread out their payments over a number of smaller instalments.

However, they weren’t the first to seize a share of this market. Google and Apple have already partnered with BNPL businesses like Afterpay, and Amazon has worked up with Barclays and Citi to allow customers to pay over time.  

With adoption on the rise and more Big Tech companies likely to follow suit, let’s dive deeper into what Big Tech breaking into BNPL means for banks. 

BNPL’s rise in popularity

BNPL is an enticing concept – to businesses as well as consumers. Let’s start with consumers.

Through split-up payments, customers are given more flexibility and control over their finances, also helping them avoid bank overdraft fees. As many BNPL firms don’t carry out strict credit checks, this method can also be seen as a more inclusive form of finance. These advantages are especially important in a cost of living crisis, although there are concerns that customers could overextend themselves and take on more payments than they can afford. 

Then there’s the value to businesses. Our research, published last year in partnership with Deloitte, found that 41% of consumers say they are more likely to shop at stores that offer BNPL. Research from RBC Capital Markets also found increases of 30-50% in average order value and a 20-30% improvement in sales conversion when BNPL is offered.

Another consideration with BNPL is its impact on customer retention. In a time of increased business costs, economic uncertainty and consumer plans to cut down spending, this form of short-term financing may be a wise choice for merchants who wish to see customers returning to them.

Apple’s big moves 

Apple Pay Later’s launch signals a decisive move from Big Tech, and other key players are likely to be galvanised into further action as BNPL interest surges. The strength of Apple’s brand could be expected to encourage new BNPL users too, transferring the trust associated with the company to this new form of finance. There’s huge growth potential here: as of last August, almost 75% of iPhone users in the US had activated Apple Pay.

We could also expect Apple’s action to precipitate or expediate greater regulation. The lack of controls across BNPL has long been a concern with tighter restrictions called for: Apple Pay’s arrival and subsequent surge in BNPL interest could hasten change. In the UK, the process of introducing regulation is already underway with the government issuing draft legislation and launching a public consultation in February.

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What’s next for BNPL?

The future of BNPL may be more tightly regulated, but it’s set to be brighter too. The younger Gen Z and Millennial generations are leading adoption, yet there’s recently been increased appetite among older consumers. At Klarna, the fastest-growing age group is now over 58 years old.

With such cross-demographic growth and high interest among the younger generations, BNPL is set to become a key form of payment that will stand equal to – or even outweigh – traditional payment forms for many. Combined with Big Tech’s BNPL moves and the legitimising structure of new legislation, it seems that soon we’ll always have the option to split up transactions.

This means banks and businesses need to get serious about BNPL. Consumer appetite is there suggests research from PYMNTS, which shows that 70% of current BNPL users would be interested in using BNPL plans from their banks if such offerings were available. As the market for this type of financing soars, incumbent banks who refuse to adapt risk getting left behind and losing customers to more innovative players. On the bright side, banks are in a better position than fintechs in a market facing more regulation, lower margins and potential market consolidation. BNPL may be a way to improve merchant relationships and strengthen value propositions.

It’s been proven that businesses utilising BNPL see higher conversion rates, order values and revenue retention. There’s no doubt that consumers prefer short-term financing as a means of payment in the current economic climate, and Big Tech’s entry into the market has further accelerated this trend. Businesses who continue to not accept this form of payment run the danger of losing clients to rivals who do.

BNPL is here to stay, and those who don’t take note are set to be left in the dust. 

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