Buy Now Pay Later Cards and In-Store Checkout

What You Need to Know:

• E-commerce remains the primary driver of Buy Now Pay Later (BNPL) volume
• Our research and proprietary survey of BNPL card issuers suggest the market could be overlooking a significant in-store commerce opportunity.
• Overall, in-store commerce is multiple times the size of e-commerce and could be a significant growth driver in the next 5–10 years.
• BNPL providers have been increasing efforts to expand into in-store through multi-use cards.

The TD Cowen Insight

While e-commerce is still the primary driver of BNPL volume, the larger overall market size of in-store commerce positions it as a significant growth driver in the next 5-10 years. Our research data coupled with the results of our BNPL card survey leaves us more confident that the BNPL industry should continue to deliver volume growth going forward.

Our Thesis

Given the sheer size of the in-store commerce opportunity (i.e., almost 4x the size of e-commerce globally), we believe there is very significant white space for BNPL providers to gain share with in-store. Indeed, BNPL providers across the board have been making increasing efforts to expand beyond e-commerce and into in-store, which involves getting BNPL multi-use cards into consumers' hands.

We believe if BNPL penetration in global e-commerce continues to increase gradually, while penetration in global in-store checkout increases from the current minuscule level to approximately 2%, that could provide a tailwind for the BNPL industry to grow in the range of 30% over the next five years.

Each percentage point (ppt) of penetration of in-store commerce could add around 7 ppt to the BNPL industry growth over the next decade by our estimates. This would ensure that the major players grow at current levels for an extended period and should give investors increased confidence in the long-term growth potential of this business. We believe consensus has very little modelled in for the expansion of BNPL into in-store.

We see major BNPL providers as the clearest beneficiaries of this in-store expansion, particularly when they are ahead of others in in-store card offerings, either in scale or in consumer engagement with the cards. BNPL providers that cater to low-end consumers should benefit as well. Meanwhile, at least one provider may be falling behind when it comes to in-store BNPL commerce.

What You'll Find in Our Full Research Report

A collaboration between TD Cowen's consumer finance and payment research teams, this report is a product of our proprietary survey on the current state of BNPL multi-use card offerings, which are often issued to consumers for the purpose of in-store purchases. Many surveys we have seen on the BNPL industry focus on general usage, which is inherently more skewed towards e-commerce, thus likely missing out on the enormous opportunity from in-store commerce.

We asked our panelists about the different attributes of their multi-use BNPL cards when it comes to in-store checkout, as well as to compare and contrast these products offerings from different companies. We are not aware of any previous, similarly in-depth BNPL card consumer research by our peers on the Street.

What To Watch

Continued growth in active cardholders and card Gross Merchandise Value (GMV) at levels above the overall business should validate BNPL providers' in-store push. Investors should also watch out for a potential change in the mix of BNPL card GMV, as more interest-bearing volume would be more profitable for BNPL providers, while more pay-now volume would indicate consumers developing a habit to use these BNPL cards as a top-of-wallet card. We also look forward to more details on the overall economics of these cards and how BNPL providers could further boost engagement and usage. It is also interesting to see how global card networks could play a role in this area, as the fact that BNPL providers need a card format to deliver the in-store experience makes the case stronger for BNPL to be allied with the networks.