An eye on BNPL future  

I have strongly believed that we are creatures of dreams & aspirations! Reaching self-fulfillment is the epitome of satisfaction, and the challenge is momenta thus when we get what we want, when we reach what we desire… It is euphoric!

Marketers know that, they know about the importance of communicating aspirations, and the criticality of making them somehow handy- this is the sweet alluring spot, you feel the temptation in your gut & the spark of lure in the tips of your fingers, enticing your brains to send those excited tips to get your wallet out of your pocket to get your visa, then you might rethink; Can I do this purchase with Visa! Should I consider the newly growing trend of buy now pay later! Then a conscious voice in your head “or will I regret later?” then up to your mental state, financial reasoning of the purchasing process, the appeal of the offer, you might buy… the best part is you don’t need nowadays to have available cash, also you don’t need to go to the bank for a loan… all you need is to have the desire to purchase and the power via credit card or BNPL app on your phone to let the buying party & aspiration fulfilment begin! 

So, while you get a loan to get a car or apartment “big ticket items” BNPL is being used starting from groceries shopping up to the car of your dreams! 

Looking at its business model, The BNPL provider makes money from interest charges due to late or missed payments as well as receiving a fee from the merchant for taking on the credit risk. the BNPL fintech companies have “softer” credit standards “and could face large losses in the case of customer defaults”. Considering that The BNPL option allows customers to choose an installment plan, ranging from 6 to 60 months, without any down payment, making consumers dreams or even basic demands attainable 

Let them eat cake” is a phrase famously attributed to Marie Antoinette, the Queen of France during the French Revolution. After being told that the French population was facing a bread shortage, because of the poor crop harvest and the rodents, and as a result, was starving, Marie Antoinette replied with “let them eat cake!” 

So, while consumers can not afford the cake- and obviously the cake is more expensive than bread- their aspirations will make them enter the BNPL world and retailers will ensure such attraction- they will facilitate the cake serving  

According to RBC Capital Markets, BNPL increases retail conversion rates by 20% to 30%. People browse through shops online or in person and see things they like but do not always buy them, due to budget constraints or other reasons. Having BNPL as a payment option, however, seems to significantly increase the chances of a shopper completing the purchase. 

BNPL also lifts the average basket size by 30% to 50%, RBC Capital estimates. Instead of buying a 7k EGP washing machine, the shopper goes for the 8K EGP one with more functionality because the interest-free installment option makes the later look more affordable.

In addition, Retailers whose client base is especially young have benefited from BNPL’s appeal among that demographic. According to a study by Klarna, one of the largest BNPL providers, average order volume is 73% higher with BNPL compared to other payment methods for the customers of Rue21, an apparel retailer targeting young people. Not only this, but those customers come back more often as well. An important note here, let us not underestimate the ease of the approval process, it makes buying decision easier 

So, what does it mean for Egyptian consumers? 

The Egypt Buy Now Pay Later Gross Merchandise Value is Expected to Reach $6.5 Billion by 2028 (as per research & markets) where BNPL payments in the country are expected to grow by 93.6% on an annual basis to reach US$875.4 million in 2022. Medium to long term growth story of BNPL industry in Egypt remains strong. BNPL payment adoption is expected to grow steadily over the forecast period, recording a CAGR of 39.7% during 2022-2028.

Moreover, more e-commerce will certainly launch BNPL services, thus boosting the growth of the digital payment ecosystem in the country. for instance, in July 22 Amazon gets into strategic collaboration with ValU to realize this purpose this gives a hint about the seriousness of the size of the prize 

BNPL is not cheap for retailers, As BNPL becomes a larger part of the payments mix, cost will become a bigger consideration for retailers. As they did with free shipping, which was all the rage for a short while until the companies felt the cost pressure, retailers may soon push back against BNPL fees. Which will put pressure from the industry to push for government interventions to get the payment networks to reduce interchange fees

How is this further shaping the future of retailers? It feels like a condemned fruit, it is promising, and we already have some retailers do BNPL/ installments on their own credit, but it has a decent component of risk! 

Should local retailers think about private label credit cards that work only in their stores since they already provide installments options!  Should they expand outside their operating industry & team up with this credit card in another industry! For example, a retailer who does BNPL for home appliances can stretch his muscles into this service as a primary product and team up with top jewelry stores or furniture chains with his label credit card & market it as a stand alone service of its own! 

As regulatory concerns grow worldwide over consumer indebtedness that BNPL may cause, the retail industry could find itself blamed for enabling it along with the BNPL providers. If some of the BNPL firms fail in an economic downturn under the weight of surging credit losses, retailers may find themselves in the political crossfire. 

As per Protiviti, Regulation will likely slow down the breathtaking growth of BNPL worldwide as providers are forced to assess affordability and do more comprehensive credit and identity checks. That will protect vulnerable customers from overextending themselves. It will also help level the playing field for banks and enable them to compete on more equal terms. 

Thus, whether you are a retailer or consumer reading this right now, while you are planning to eat this cake, make sure that the size of the bite doesn’t break your teeth or hurt your stomach! After all there is no free launch!