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For Australians Buy Now Pay Later (BNPL) is a well-understood consumer finance product having been pioneered on these shores by Afterpay but for the US market, BNPL is a relatively new phenomenon that is witnessing explosive growth, driven by shifts in consumer preferences, increasing penetration of e-commerce, and financial technology innovations. The market's potential is enormous, but it faces challenges, including competition, regulatory scrutiny, and economic uncertainties. ABSI this week will analyse the US BNPL opportunity. 

Despite higher interest rates, the BNPL industry has been booming. According to industry estimates, the global BNPL market was valued at approximately US$7.6 billion in 2023, with projections for it to grow to US$38.6 billion in 2030 at a CAGR of 26.1%. Despite only launching in the US around 2019, North America has quickly gained the highest revenue share in the global BNPL market at 29.9%.

Source: Capital One

The US market growth is attributed to a number of key drivers. US online retail sales have now surpassed US$1 trillion per annum and BNPL has been a fertile ground for adoption in this arena as a convenient and frictionless option. Consumers increasingly opt for BNPL as an alternative to credit cards for E-commerce purchases as they’re a tech-first financial product. This is evidenced by the adoption of younger generations with Millennials and Gen Z making up ~86% of users in the US according to EMarketer. These groups are attracted by BNPL's ease of use, zero-interest payments, and the ability to avoid traditional credit products.

Source: EMarketer

It is important to appreciate the growth opportunity ahead, as BNPL accounts for less than 5% of total retail transactions in the US. In America, the purchase volume of credit and debit cards was US$10.4 trillion in 2022. That is the total addressable market (TAM) that BNPL players are targeting and while traditionally used for retail, BNPL is expanding into niche areas like "Care Now Pay Later" in healthcare. These innovations unlock new consumer bases and offer significant growth opportunities for BNPL operators.

The competition in the US BNPL market is relatively condensed, dominated by the likes of Klarna, Affirm, Zip, Sezzle, and Afterpay (now owned by Block) owning over 95% of the market. These five major lenders originated over US$24 billion in BNPL loans in 2021. Noteworthy, two of these five originated in Australia which demonstrates the country’s expertise in the sector. 

For investors in the publicly listed BNPL providers, the journey has been a roller coaster but has been fruitful in 2024. On the ASX, BNPL providers have been some of the best-performing stocks including Zip (up 411% YTD), BeforePay (up 193% YTD), Humm (up 53% YTD), and Block (up 12% YTD - a larger payments company with many aspects). Over on the Nasdaq, Sezzel has had a bumper year up over 1,700% this year and Sweden-based Klarna has also signalled to the market its bullishness for the future, recently filing for IPO with SEC.

Source: Google Finance

Despite the dominance of the incumbents, significant headroom remains in the industry, especially in cities, industries, and retailers that have largely been ignored by the major incumbents. ASX-listed BNPL provider Ovanti (ASX: OVT), and Barclay Pearce Capital client, have announced plans to launch a US product in 2025 to capitalise on the growth trends in that market. OVT showed conviction in the space recently by hiring the former US CFO of Zip (ASX: ZIP) to spearhead the initiative. This move underscores the increasing globalisation of BNPL and OVT's entry will likely spur growth in untapped niches.

On a final note, despite its growth potential, the BNPL market faces several challenges. Regulators are examining BNPL practices for potential consumer harm, particularly around transparency and debt accumulation. Moreover, an economic downturn in the US could also impact consumer spending and repayment rates, posing risks to BNPL providers heavily reliant on transaction volume.

The US BNPL market represents a massive opportunity for operators, with robust consumer demand and significant untapped potential in emerging sectors. While competition with credit cards and other payment options will intensify, BNPL’s unique value proposition—transparency, accessibility, and flexibility—positions it for sustained growth. Klarna’s upcoming IPO and Ovanti’s ambitious US expansion are a testament to the sector’s dynamism. For investors and stakeholders, BNPL remains a space to watch closely as it transforms the way Americans approach spending and financing.

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