The US company Square spent 29 billion U.S. dollars (approximately Rs 21562 crore) to acquire Australia’s “buy now and pay later” application Afterpay, making this fast-growing industry that has attracted the attention of regulators the focus of attention.

This seven-year-old app based in Sydney-allowing users to pay for small purchases in regular installments-is aimed at millennials who embrace a cashless lifestyle.

It now has more than 16 million customers worldwide and cooperates with nearly 100,000 retailers.

Afterpay is the most famous “Buy Now, Pay Later” (or BNPL) app alongside Sweden’s Klarna.

Its success caught the attention of Square, a digital payment platform owned by Twitter CEO Jack Dorsey, who announced the huge deal on Sunday.

But other big-name players are also vying for a piece of cake, including electronic payment service PayPal, online retailer Amazon and banks.

According to a study by Kaleido Intelligence, the valuation of the BNPL industry has quadrupled globally between 2018 and 2020, reaching nearly 80 billion U.S. dollars (approximately 5.9386 billion rupees), and may rise to 250 billion U.S. dollars (approximately). 185,598 crore rupees)) by 2025.

Sia Partners banking analyst Thomas Rocafull said: “This is a principle that has existed for a long time, but the process of signing it has never been so smooth, effective and responsive.”

Unlike credit cards, BNPL users do not need to pay interest or franchise fees, and the consumption limit is kept at a low level.

The company earns most of its revenue by charging retailers with transaction costs.

In the case of Afterpay, the store that used the app lost about 4% of the transaction value, but could obtain the remaining cash in advance and would not face the risk of non-payment.

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Juniper Research analyst Nick Maynard said: “For users, it provides a cheaper method of financing purchases than credit cards, and it is very convenient for them during the checkout process.”

“It is relatively simple for merchants to integrate BNPL into their checkout, and it allows them to increase the average order value and conversion rate.”

According to Kaleido Intelligence analyst Steffen Sorrell, retailers offering BNPL options have seen an increase in the number of visitors to their website by approximately 20%.

Crowded market
Kaleido Intelligence estimates that Americans are the largest customers of such applications, accounting for about one-third of the global BNPL market by 2020. But Asia is also developing rapidly, while the situation in Europe is more complicated.

According to data from Sia Partners, BNPL payments accounted for 23% of online retail sales in Sweden in 2020 and 19% in Germany.

In contrast, in countries such as Spain and Italy where consumers still prefer traditional payment methods, this proportion is only 2%, while in France it is 4%.

Despite this, Rocafull said that he expects the southern European market to “explode” in the next few years.

According to Jean-Pierre Viboud, head of BNPL expert Oney Bank, the market expects an annual growth rate of 30% in Europe.

However, as the number of such BNPL service providers increases, “the market is very crowded,” Maynard said, and predicts that there will be an “integration period” in the foreseeable future.

Square’s acquisition of Afterpay is just the latest in a series of recent mergers and acquisitions in the industry.

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In January of this year, Affirm, founded by the co-founders of PayPal, acquired PayBright in Canada. Last year, Klarna acquired Moneymour in Italy.

In France, banking giant BNP Paribas signed an agreement to acquire online consumer credit provider Floa last week. In May, Banque Postale partnered with Alma, a fintech startup.

Not risk-free
But there are also risks. Critics believe that Afterpay and similar apps may entice people to spend money they don’t have.

The BNPL industry is basically unregulated in most countries, and some people are calling for regulators to step in to protect consumers.

“Some consumers don’t know what will happen if they default on payment, which is bad for the industry as a whole,” Sorell said.

Users who fail to pay the scheduled payment will be hit by huge late fees.

The Board of Directors of the Financial Conduct Authority of the United Kingdom stated in February that “there is a strong and urgent reason to put the buy-and-pay business into regulation”.

A report commissioned by FCA stated that the use of BNPL products has almost quadrupled in 2020, reaching 2.7 billion euros (approximately Rs 237.4 billion), with 5 million users.

The review found that although BNPL products provide consumers with an alternative to more expensive credit, they “also represent a significant potential harm to consumers.”