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Will Buy Now Pay Later Replace Credit Cards as a Top Online Payment Method?

Buy Now Pay Later (BNPL) services have experienced explosive growth rates over the past two years. With online shopping booming despite household budget restraints during the lockdowns, BNPL solutions as a form of easy-to-apply consumer credit were integrated directly into E-Commerce checkouts and caught on quickly. Of the top 3 BNPL providers, Klarna increased its user base two-fold between 2019 and 2021, while Afterpay’s and Affirm’s saw their number of active customers double in 2021 alone.

Amidst this expansion, Klarna published a blog post titled “The inevitable decline of the credit card.” How real is this threat? Will BNPL offerings replace credit cards as a leading online payment option in the near future?

According to data cited in our latest report, “Global Buy Now Pay Later Market and Trends 2022” by yStats.com, BNPL is indeed seeing stronger growth rates than credit cards. Even in the post-COVID era, BNPL payments are projected to maintain strong double-digit growth at least through 2026. Younger generations especially are attracted to this new payment method, with some surveys showing a higher penetration of BNPL users among 18-24 year-olds than of credit card users in the same age group. The most cited reasons for using BNPL were the ability to purchase something that otherwise would not fit the budget and the desire to avoid paying credit card interest.

Inevitably, BNPL’s share of global E-Commerce payments is projected to rise significantly between 2021 and 2026, squeezing the share of other payment methods, including credit cards. At the same time, recent projections cited in the yStats.com report show that BNPL services still have a long way to go to catch up with credit cards at the top of the E-Commerce payments ranking in countries such as the U.S. Also in Germany, where the leading online payment method is a form of “pay later”, namely, payment by invoice after the receipt of the goods, less than 5% of consumers prefer to pay for E-Commerce purchases with a BNPL installment option. In Australia, one of the world’s top BNPL markets, credit card loans still have more than twice as high usage rates as BNPL loans.

To sum up, BNPL services are projected to continue growing strongly and gaining a higher share of E-Commerce sales, especially among younger shoppers. However, credit cards remain strong and still lead both in usage rates and in loan volumes in some leading markets worldwide.