4 Buy now, pay later Trends smart investors are watching in 2022
Buy Now, Pay Later (BNPL) loans have exploded in popularity in recent years. As more and more young adults turn to these financing options, companies like To assert (NASDAQ: AFRM), After payment (OTC: AFTP.F), and Klarna have seen their income growth accelerate.
Investors should expect the industry to continue to grow rapidly. However, there are other factors you will need to pay attention to, including increased scrutiny from regulators, as well as consumer credit rating companies paying more attention to these types of lenders. You’ll want to take a wait-and-see approach to BNPL companies as more and more competitors enter the space as well. Here are four trends savvy investors should watch out for as we head into 2022.
1. More and more online consumers will turn to BNPL
The growing popularity of BNPL options is particularly strong among millennials and Gen Z. According to a NerdWallet survey, 1 in 5 buyers used BNPL options in 2021, with 22% of those surveyed being Gen Z customers.
Not only that, but several retailers have added BNPL options over the past year, including large retailers like Target and Amazon. They turn to BNPL because they help boost sales.
In a study by Accenture and funded by Afterpay, BNPL transactions accounted for about 6% of all online spending in 2021. The consultant expects steady growth in the use of this type of funding, and the company predicts 13% of all online spending. online transactions will involve the use of BNPL loans by 2025.
2. Large companies will look for their own BNPL products
One of the engines for the growth of BNPL loans is that more companies are developing their own BNPL products. A company that has grown within BNPL is Pay Pal, which in September bought out Japan-based lender BNPL Paidy for $ 2.7 billion. To block, the company formerly known as Square, is another company that caused a stir in the BNPL market by buying Australia-based Afterpay for $ 29 billion in August.
Banks can also develop in this area. According to McKinsey, banks have lost $ 10 billion in annual revenue to fintechs offering BNPL products. In September 2021, Goldman Sachs spent $ 2.2 billion to buy GreenSky to strengthen its consumer credit unit. Ruby Walia, adviser to digital banking and consultancy firm Mobiquity, told Yahoo that he expects more banks to introduce BNPL products next year, further increasing competition.
3. Regulators will increase monitoring of these loans
With BNPL’s popularity exploding among young adults, the Biden administration will likely take a more critical stance towards these companies. The Consumer Financial Protection Bureau (CFPB), established under former President Barack Obama, has asked BNPL companies, including Affirm, Afterpay and PayPal, to provide the agency with information on the risks and benefits of BNPL options.
One problem is that BNPL products have less protection than credit cards. For example, returning goods or disputing fraudulent or erroneous charges made under BNPL programs can be much more difficult. The CFPB is also concerned about the amount of debt consumers accumulate and the amount of data collected on their spending habits.
These BNPL companies have until March 1 to submit this data, which could lead to increased scrutiny of their business practices.
4. Credit rating companies will start including these loans on credit reports.
Finally, consumer credit rating companies will begin to pay more attention to BNPL loans, which will likely play a bigger role in credit reports than in the past. In general, most BNPL lenders do not report payment history to credit bureaus, unless the loan has been sent to a debt collector.
Credit rating company Experiential said it already includes BNPL loans in consumers’ credit reports. During this time, Equifax said he would start adding BNPL loans to consumers’ credit records from next month.
As BNPL loans are increasingly used for online transactions by young consumers, it is good to see credit rating companies paying more attention to these loans which can help people with a credit score. less than building up a credit history.
Increased surveillance is a good thing
This year should be an interesting one for the BNPL industry. Increased regulatory oversight and interest from credit rating companies will treat BNPL loans more like traditional loans. I think it could legitimize these long-term payment options while protecting consumers.
Increased competition from banks and other large companies could challenge many of these BNPL companies. In the years to come, we may see more consolidations and acquisitions in the industry, continuing the trend established last year by PayPal, Block and Goldman Sachs.
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