The coronavirus-hit world today has highlighted the significance of the buy now, pay later (“BNPL”) solutions, bringing providers of the solutions like
PayPal ( PYPL Quick Quote PYPL - Free Report) , Square ( SQ Quick Quote SQ - Free Report) , Shopify ( SHOP Quick Quote SHOP - Free Report) , Affirm ( AFRM Quick Quote AFRM - Free Report) Visa ( V Quick Quote V - Free Report) , Klarna, Stripe and American Express under the spotlight. Rising prices of goods along with the increased rate of unemployment and growing financial insecurity, owing to the coronavirus-induced supply-chain disruptions, stay-at-home restrictions, lockdown situations, and shutdown of many factories and offices, are the primary factors behind the solid demand for BNPL solutions. The increasing adoption of e-commerce, resulting in a continuous rise in the online shopping volumes amid the pandemic, remains the key catalyst in driving the demand for BNPL solutions. The e-commerce giant Amazon ( AMZN Quick Quote AMZN - Free Report) also offers BNPL service via Amazon Pay Later. The increasing requirement of easy online financing options has made BNPL an attractive solution for online shoppers. Sellers also find BNPL a better way to expand their reach to customers in the current scenario. The solutions help customers in alleviating the financial burden of immediate payment for their purchases. The increasing trend of avoiding credit card interests among money-conscious shoppers is acting as another tailwind. Thanks to the flexibility of paying for purchases made in easy installments with zero interest benefit, the adoption rate of BNPL solutions will continue to strengthen in the near term as well as in the long run. Per a report from Coherent Market Insights, the global BNPL market is expected to reach $1.13 billion by 2027, witnessing a CAGR of 21.2% between 2020 and 2027. An Allied Market Research report suggests that the market is expected to hit $3.9 trillion by 2030, seeing a CAGR of 45.7% between 2021 and 2030. According to a report from Insider Intelligence, the transaction volume in the BNPL market is expected to hit $680 billion in 2025 by witnessing a CAGR of 13.2%.
Image Source: Zacks Investment Research Stocks to Watch
The stocks mentioned below hold the potential to capitalize on the above-mentioned growth prospects in the booming BNPL market.
Affirm, a leader in BNPL solutions, is gaining solid traction on the back of its winning strategic deals. The Zacks Rank #3 (Hold) company has recently cracked a deal with Amazon to provide installment payment services to shoppers on the latter’s platform. Affirm has agreed to become the exclusive provider of BNPL services for Shopify, which remains a major positive. More precisely, all merchants across the United States enrolled in Shopify will be able to avail Affirm’s Shop Pay Installments to gain more customers and grow their businesses. Affirm’s acquisition of Returnly, a leader of online return experiences and post-purchase payments, remains noteworthy. We believe that Affirm is well-positioned to reap benefits from the growing BNPL market on the back of its robust two-sided network for consumers and merchants. The company’s merchant base increased more than five-fold in fourth-quarter fiscal 2021. Its active consumer base grew 97% from the year-ago quarter. PayPal is constantly making strong efforts to strengthen its BNPL offerings. Its robust solution called Pay in 4, which enables merchants to allow their customers to make payments for purchases ranging from $30-$600 in four interest-free installments over six weeks, is gaining strong momentum. Notably, merchants are not required to pay additional fees for the new solution as it is included in their current PayPal prices. Additionally, customers can enjoy seamless payment experiences via the PayPal app in synchronization with their PayPal wallets. Recently, this Zacks Rank #3 company made the Pay in 4 service available to eligible customers in Australia. It is offering the solution free of any interest, payment fees and sign-up fees in the country. The company has put a stop to late fee charges for missed payments on BNPL products. New customers availing Pay in 4 in the United States, Pay in 3 in the U.K., and Pay in 4X in France will not be charged late fees for missed payments from Oct 1. In addition to these, PayPal has agreed to acquire a Japan-based BNPL solution provider, Paidy, which operates a two-sided payment platform. Notably, the platform scores creditworthiness, underwrites transactions and guarantees payment to merchants via its technically advanced BNPL solutions. The growing traction of Paidy 3-Pay monthly installment solution across the leading global brands and online marketplaces remains noteworthy. Square recently raised its bar by signing a Scheme Implementation Deed to acquire the Australian BNPL giant, Afterpay. Solid customer and merchant bases of Afterpay will help Square in strengthening its foothold in the promising BNPL market. Notably, customer and merchant bases of Afterpay stood at 16 million and 100,000, respectively as of Jun 30, 2021. Square, which carries a Zacks Rank #3, also offers Square Installments, which enables small business clients such as hairdressers and car part sellers to offer the flexibility of payment in installments to their customers. Customers are allowed to pay for their purchases ranging from $250 to $10,000 in fixed monthly installments over three, six and 12 months. The company is gaining strong momentum among small businesses on the heels of Square Installments. Visa’s concerted efforts to bolster its presence in the BNPL market remain noteworthy. The Zacks Rank #3 stock has recently rolled out a service called BNPL in the United States, Canada, Russia and Malaysia. You can see the complete list of today’s Zacks #1 Rank (Strong Buy)stocks here. Notably, the service is designed for its credit card-issuing customers — banks and credit unions, and fintech companies. The company has set up a BNPL website. Further, its BNPL service includes three installment models — Pre-Purchase, During Purchase and Post-Purchase — to help customers with flexible payments.