What Is the Financial Service 'BNPL' That MZ Generation Is Enthusiastic About?

[Asia Economy Reporter Kwon Jaehee] Recently, Goldman Sachs announced that it will acquire the BNPL service fintech company 'GreenSky' for $2.24 billion (approximately 2.6 trillion KRW), drawing attention to BNPL services.

It is not only Goldman Sachs. Earlier, Square, a fintech company led by Twitter founder Jack Dorsey, also announced plans to acquire Australia's BNPL company Afterpay for $29 billion (approximately 33.4 trillion KRW). The U.S. online payment company PayPal also acquired Japan's BNPL company Paidy for $2.7 billion (approximately 3.148 trillion KRW), intensifying competition among financial companies to dominate the BNPL market.

[Image source=Reuters Yonhap News]

The reason financial companies are acquiring BNPL firms is due to the significant growth potential of the BNPL market. According to market research firm Statista, the U.S. postpaid payment market, currently valued at $55 billion (approximately 63.8 trillion KRW) this year, is expected to grow to $114 billion (approximately 132.3 trillion KRW) by 2024.

The Wall Street Journal (WSJ) diagnosed, "Recently, many fintech companies have been acquiring BNPL startups one after another, expanding their scale."

BNPL stands for Buy Now Pay Later, a 'pay after purchase' service. BNPL companies provide a two-way service between e-commerce companies and consumers: offering consumers POS (Point of Sale) installment loan services that allow payment at a future date, and providing e-commerce companies with early sales proceeds. Consumers receive the goods first and then pay the installment amount to the intermediary company later. Although it may seem similar to credit card installment services, BNPL differs in that it is available even to those with low credit scores and usually has no or very minimal fees for installment transactions.

With these characteristics, BNPL services are rapidly expanding the market by targeting the MZ generation. The MZ generation, referring to people in their 20s to early 40s, is characterized by low purchasing power but high consumption tendencies. Especially in the U.S., where credit card issuance is strict, consumers are increasingly turning to BNPL services. According to the U.S. credit rating agency Fair Isaac, about 53 million American adults have credit scores too low to obtain credit cards. They represent the potential customers for BNPL services. The recent normalization of e-commerce due to COVID-19 has also greatly contributed to the rapid growth of BNPL companies.

As the number of young people using BNPL services increases, retailers are adopting BNPL services one after another to capture this demographic. Affirm, a leading BNPL company in the U.S., is responding quickly by partnering with major companies such as Amazon, Peloton, and Walmart. Macy's, the largest department store in the U.S., and home goods retailer Bed Bath & Beyond have also added BNPL as a payment method.

However, BNPL companies do not have only a rosy future. As the market grows rapidly and sales increase, losses are also rising. Klarna's net loss in the first half of this year increased by 155% compared to the same period last year. Afterpay's net loss increased sixfold in one year. Major foreign media analyzed, "As postpaid payment companies expand their size and enter new markets, credit losses are rapidly increasing."

This content was produced with the assistance of AI translation services.