Based on our analysis, we consider that BNPL itself is not systemically important for e-commerce payments as long as there is a high degree of interchangeability. That is, the public would still be able to make payments if the BNPL payment option was not available. However, many online retailers are dependent on the broader checkout solution offered by BNPL providers. Even so, this dependency seems to be less of a problem in the short term as, there is some degree of interchangeability due to different types of fallback solutions that can be used during a transitional period.

Almost all e-commerce payments in Sweden rely on BankID. This poses a risk as it makes it a key dependency for the functioning of e-commerce payments. If BankID crashes, it will be difficult to use virtually all the payment solutions currently available. This includes BNPL which is subject to a new requirement for strong two-factor authentication for purchases since the beginning of the year, which typically involves identification via BankID.^[19] See Sveriges Riksdag, Report 2022/23:FiU18 (2022). Payment solutions that do not rely on BankID are most often made through foreign providers, such as PayPal, but fewer online retailers have agreements with such providers.

In the text below, we discuss the interchangeability of the BNPL product itself and its interchangeability with the broader checkout solution in which it is normally integrated.

The BNPL product is just one of many payment options

The analysis shows that the BNPL product is currently interchangeable and not systemically important for e-commerce payments. There are several reasons for this conclusion.

Firstly, although BNPL is an important payment method in e-commerce, it represents a relatively small share of the overall consumer credit market (see Diagram 7). BNPL is generally used for small purchases and most people who use it pay on time.^[20] More than 90 per cent of consumers pay their invoices on time according to Finansinspektionen, Swedish Consumer Credit 2022 (2022). ^[21] The average invoice purchase is less than SEK 1,000 according to Finansinspektionen, Swedish Consumer Credit 2022 (2022). It thus seems reasonable to assume that BNPL is not primarily used because there is an underlying need for credit but perhaps primarily for the security and convenience aspects it provides when shopping online.^[22] This can be seen, for example, in Nets, “Ecommerce Report Sweden 2022”, which shows that Swedish consumers mainly favour invoices because they are perceived as a secure payment option. The report is based on interviews with 10,000 internet users in Norway, Denmark, Finland, Sweden, Switzerland, Germany, Austria and Italy. This would mean that a high proportion of BNPL purchases could be completed with other payment options if BNPL were not available. It is particularly reasonable to think this, as there are now alternative ways to meet both the need for security and simplicity or convenience. When it comes to security, Svensk Handel (the Swedish Trade Federation), for example, offers the Trygg e-handel certification at a cost to the online retailer.^[23] Trygg E-handel is a certification for online retailers owned and operated by Svensk Handel AB. To obtain this certification, the online retailer must fulfil a number of requirements, such as withdrawal rights, refunds and data protection. The certification is displayed as a symbol on the online retailer’s website. When it comes to ease or convenience, there are now alternatives such as Swish.

Figure 7. BNPL compared to other Swedish consumer loans Consumer loans broken down by loan type, share of volume, per cent

Other payment options are also growing in popularity

Secondly, there are several alternatives to BNPL in e-commerce today. In recent years, for example, Swish has emerged as a popular alternative to BNPL. Over half of the Swedish consumers interviewed in 2022 had used Swish to pay for an online purchase in the past year, with the main reason being that it is convenient and easy.^[24] See Nets, “Ecommerce Report Sweden 2022” (2023). The increasing use of Swish is also confirmed by the observations of the providers we interviewed, who state that Swish is growing rapidly as a payment option because consumers see it as a smooth and easy way to pay without having to enter card details, for example. The Riksbank’s latest cost study also shows that Swish is the fastest payment option for online payments.^[25] It takes 20 seconds to pay with Swish compared with 49 seconds to pay by invoice or 50 seconds to pay by card; see N. Engström, F. Linton and R. Olofsson (2023), “Payments cost – but the costs vary”, Economic Commentary, Sveriges Riksbank. BNPL is probably most important in sectors where many goods are returned, such as fashion and clothing.^[26] This is however subject to change as retailers have started to reduce the availability of free returns due to cost and environmental reasons.

More of the people surveyed had used Swish than invoicing for online purchases in 2022.^[27] See Nets, “Ecommerce Report Sweden 2022” (2023).

The checkout solution is replaceable in the short term thanks to fallback solutions

The checkout solution as a whole offered by BNPL providers can be replaced relatively quickly in the short term, albeit with a simpler solution, given the alternative solutions that are often available to maintain payments. There are several reasons for this conclusion.

First, the overall checkout solution of each BNPL provider is highly interchangeable with that of the other providers as their technical solutions are very similar and often based on the same underlying technology.^[28] Although they are based on similar underlying technologies, it is unlikely that all actors’ solutions would stop working at the same time. This is partly due to the fact that they often work with different versions of the checkout solutions and have constructed their integrations in different ways. There may be greater differences between the forms of service or the prices they offer customers than between the solutions themselves. Moreover, the e-commerce platforms used by online retailers typically have integrations with several different BNPL providers. This makes it relatively easy for smaller online retailers in particular to switch checkout solution in the event of insolvency or technical problems, given that they often have a less customised checkout solution. However, this possibility depends on whether there are contractual restrictions.

Second, many larger online retailers often already have a fallback solution, that is to say a solution that they can use if their main supplier’s solution crashes or stops working. Common fallback solutions include a simple checkout with only card payments, Swish or both and, to some extent, services from foreign providers such as PayPal. These alternative solutions can usually be up and running very quickly for larger players who already have contracts and alternative solutions in place. But even for smaller operators, it can be relatively quick to set up an alternative solution as e-commerce platforms often have ready-made integrations.

Several players we interviewed say that changing payment system is seen as a relatively small task, for example in comparison to changing ERP system. Information on foreign payment providers’ websites also indicates that an integration can take a day or less from first contact to a functioning basic solution.^[29] Adyen or PayPal for example.

One operator we interviewed commented that one of their customers had found an alternative solution via Swish within 24 hours of being locked out of their platform.

The risk that payments in e-commerce would be unavailable for a longer period of time thus seems to be limited in the short term because it is usually possible for the online retailer to arrange an alternative, usually simpler, checkout solution relatively quickly. However, this depends on factors such as the e-commerce platform the online retailer uses, as the e-commerce platform determines whether there are ready-made integrations, the bank the online retailer uses, as this determines how long the integration with Swish will take, and whether the online retailer already has agreements for fallback solutions.

Lower substitutability when all factors are considered

There is a difference between interchangeability to keep a payment function and interchangeability concerning the entire checkout solution and underlying systems. A fallback solution that maintains the payment function can often be up and running quickly. But it takes much longer for an online retailer to replace one checkout solution with another if they want to do a complete integration that includes the front end, meaning what the consumer sees, the order management system and the accounting system. This can create problems for individual online retailers as it may require quite substantial investments, which could make it difficult for them to offer the checkout solution to consumers in the long run.

Online retailers usually integrate with the BNPL provider via the e-commerce platform, which generally has a ready-made integration with the BNPL provider that they can use, at least for some parts of the integration. However, many online retailers, especially the largest, have a unique front end with which it may take the provider some time to integrate. For large retailers, this means that the entire integration from first contact to finished product can take up to 12 months.^[30] The effective working time is shorter but processes are often delayed due to the prioritisation of other projects or the availability of key personnel.