Welcome back to Industry Shifters.

Today we are exploring the polished world of payments.

Will buy now, pay later services continue to disrupt Australia’s payments industry or fizzle out?

Let’s find out!

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Buy Now, Pay Later Services

Buy Now, Pay Later (BNPL) services have experienced rapid growth and widespread adoption in Australia over the past few years.

Companies like Afterpay, Zip, and Humm have led the charge, offering interest-free installment payment options for purchases, appealing particularly to younger, tech-savvy consumers - with 40% of shoppers aged 18 to 39 using BNPL schemes.

This trend has been fuelled by the convenience of app-based transactions, often integrated seamlessly into online checkout processes, and the ability to access credit without traditional credit checks.

Potential Impact

The Australian payments industry is substantial and continues to grow rapidly. In 2023, the value of card payments alone reached approximately $977 billion AUD, and it is projected to surpass $1.1 trillion AUD in 2024.

Provided BNPL services continue to surge in popularity and remain a convenient payment method:

In a low growth scenario, where BNPL services only come to account for 5% of this industry over the next 5 years, the market for BNPL services would be worth about $55 billion AUD by 2030.

In a high growth scenario, where BNPL services come to account for 30% of this industry over the next 5 years, the market for BNPL services could potentially be worth as much as $330 billion AUD by 2030.

Why this WILL be disruptive:

• Increased Consumer Spending and Preference: BNPL stimulates consumer spending by offering interest-free instalments, making purchases more accessible. This is particularly appealing to younger, tech-savvy demographics, with 40% of shoppers aged 18 to 39 using BNPL. The platform also supports improved budgeting and provides a convenient alternative to traditional credit cards without complex credit checks.

• Merchant Benefits: Merchants accepting BNPL report increased sales, higher average order values, and stronger customer engagement. These advantages encourage more merchants to adopt BNPL, further driving market growth.

• Technological and Competitive Innovation: BNPL platforms leverage advanced technology to streamline operations, enhance security, and foster innovation in payment ecosystems. This disrupts traditional banking systems and drives competition, forcing incumbents to adapt.

Why this WON’T be disruptive:

• Regulatory Scrutiny and Risks: The rapid growth of BNPL has drawn regulatory attention, with concerns about rising household debt. Stricter regulations could increase operational costs, limit growth potential, and reduce the sector's disruptive impact.

• Intensifying Competition: Traditional payment methods, including credit and debit cards, are evolving to offer BNPL-like features. Additionally, established financial institutions and payment providers are launching competing products, potentially eroding BNPL's market share and competitive edge.

• Profitability and Sustainability Challenges: Many BNPL providers operate on low margins, relying on investor funding and merchant fees for growth. With rising competition and operational costs, achieving consistent profitability and long-term scalability remains uncertain.