Day: April 30, 2025

To understand the current widespread appeal of BNPL apps like Klarna, Affirm, Afterpay, PayPal, and Zip today, it’s worth looking back as far as the 1990s, when the concept of paying by instalments rose to prominence in Latin American countries such as Brazil and Argentina.

In LatAm, the concept of paying by instalments, known locally as ‘parcelamento’ or ‘cuotas’ – enabling consumers to spread the cost of purchases over time – became a significant driver of economic growth in the region. From high-value consumer goods to everyday commodities, the option to pay by instalments was embedded into consumer behaviour in this part of the world more than 30 years ago.

Part of this was about increasing financial accessibility. In 1990, about 70 per cent of the adult population of Brazil, for example, had no bank account at all. Instalment payments enabled the majority of adult unbanked consumers to access goods and services without the immediate need for substantial cash savings or access to traditional credit facilities.

During this period, many Latin American countries also suffered severe inflationary surges, which further boosted instalment plan adoption as paying by instalments enabled consumers to lock in the total purchase price as it was at the moment of purchase, effectively hedging against short-term price rises. This consumer behaviour became cemented even as more and more people in this part of the world gained bank accounts and began buying more goods and services online using their bank cards. Interest-free instalment plans became the growing global Buy Now Pay Later (BNPL) phenomenon it is today and many of the emerging neobanks its champions.

BNPL used for lower-value transactions

BNPL’s growth numbers are impressive. Survey data developed by Argentine research firm D’Alessio IROL shows that in 2019, 77% of Argentine households were paying ‘cuotas’, up from 68% in 2018. Other data also tell us that instalments are increasingly being used for surprisingly low-ticket items and that their usage increases in line with purchase price: a 2019 consumer survey conducted by EBANX showed that 65% of consumers preferred to pay via instalments for products priced in the US$25-$50 range, and this percentage grows to 79% for products valued at US$50 or more.

In-store BNPL transaction volumes also rising

Although elsewhere in the world, paying by instalments was slower to catch on, there is no doubt that over the last five years, with the rise of BNPL platforms like Klarna, we’ve seen its swift consumer adoption for both in-store and via eCommerce transactions.

So, today, BNPL transactions account for approximately 10-15% of all e-commerce transactions worldwide, while nearly 40% of consumers in France were using BNPL services by 2021. Although the UK has been a little further behind in terms of paying by easy interest-free instalments, as of this year, 42% of UK adults are now using BNPL services. Indeed, as of 2023, BNPL represented about 10% of the UK’s total eCommerce transactions valued at approximately £11.46 billion. And in-store, BNPL already accounts for around 5% of UK in-store retail sales, to a value of £6.4 billion.

According to Bloomberg, the BNPL market in the UK has increased tenfold over the last five years, driven by a combination of the cost-of-living crisis, higher interest rates from other forms of credit, and the disappearance of the alternative – payday loans.

There is no doubt that merchants are seeing the opportunity to increase sales and attract more consumers to buy from them. Furthermore, research shows that consumers are prepared to buy 15-20% more expensive products if they can pay by instalments. Online basket values rise by even more than that for younger consumers – most notably Gen Zers and Millennial-age consumers now aged 13 to 44.

BNPL CAGR at 9%

Digital payment options like PayPal’s Pay in 4, Klarna, Afterpay, and Affirm have grown increasingly popular in online shops across the world. According to Statistica, the global Compound Annual Growth Rate of this alternative payment method is estimated to be nearly 9% between 2023 and 2028.

While the benefits are substantial, businesses must navigate certain challenges when implementing instalment payment systems. One major concern is credit risk management. Since extending credit always comes with the possibility of defaults, businesses must have strong systems in place to handle potential losses, charge late payment penalties and seek recovery of late payments, for example.

BNPL regulation coming

In addition, it is clear from our investigation into several countries’ National Payments Visions, which I covered here back in February, tighter regulation of the BNPL space is coming everywhere. The UK financial regulator, the Financial Conduct Authority, has already been tasked by the UK Government with rolling out new regulation covering BNPL by July 2026. The new rules will require BNPL providers to make sure customers can afford repayment before offering a loan, and to issue “clear, simple and accessible” information about loan agreements in advance. Draft regulation also says BNPL companies will need to offer refunds if consumers run into problems with the products they purchase.

The new European Directive on Consumer Credit, adopted by the European Council on 12th October 2023, focuses on credit agreements with a value of under €200. This new directive seeks to set transparent guidelines for split payments and curb excessive debt scenarios. These regulatory changes have the potential to bring about a transformation in the business model and marketing practices of BNPL services all over the world.

In the States, in May 2024, the Consumer Financial Protection Bureau (CFPB) issued an interpretive rule classifying BNPL lenders as credit card issuers under the Truth In Lending Act (TILA), and it has since implemented Regulation Z. This rule aimed to extend consumer protections traditionally associated with credit cards to BNPL products, such as the right to dispute charges and requirements for clear disclosures. However, earlier this month, the CFPB announced plans to revoke this interpretive rule due to legal challenges and industry pushback. Despite this recent development, it is clear that tighter regulation of BNPL remains inevitable.

Emphasis on smooth CX as BNPL is regulated

So, the emphasis, both in eCommerce and in-store POS transactions, must be on building seamless Customer Experience (CX) into the checkout process, despite the increasing likelihood that consumer protection guardrails and credit checks will need to be built into transaction processes, for the inevitably increasing number of consumers electing to pay by easy interest-free instalments.

At Mypinpad, we are already enabling some of these more complex payment journeys – building this functionality into our SDKs – enabling delivery and signing of BNPL contract agreements within payments workflow integrations for the likes of Brazil-headquartered Nubank and Mercado Pago. We anticipate working with more acquirers to create seamless and yet compliant BNPL processes and workflows as BNPL regulations start to bite around the world.