As BNPL has grown in popularity, so has criticism of it. This criticism has focused partly on the product itself from a consumer protection perspective and partly on the profitability of the providers’ business model.^[8] On the profitability of the operators’ business model, see, for example, Finextra, BNPL – all of this hype for a not-so-profitable business?, September 2021. More information on how it works can be found in the fact box “BNPL – How the business model works”.

The global providers focusing on the product have typically suffered heavy losses for several years because they have prioritised growth over profitability, when interest rates have been low (see Diagram 4).^[9] Large, global, specialised BNPL providers include Affirm Afterpay, Sezzle, Zip and Klarna. This strategy has favoured their valuations. The idea was that the providers would build up a large customer base that would enable profitability in a maturity phase, which meant that they spent a lot of money on marketing, for example. A large customer base with detailed customer data would also make it possible to further increase sales by customising advertising for third parties, for example.

Figure 4. Major global BNPL providers’ losses in recent years Net income/Total revenue, per cent

The global BNPL providers face high costs compared to their revenues, low margins due to fierce competition and high loan losses. This situation has been further exacerbated by higher interest rates, which have also increased providers’ funding costs. At least one BNPL provider has already gone bankrupt as a result of the deteriorating macroeconomic situation.^[10] The Australian provider OpenPay went into receivership in February 2023; see, for example, Finextra, Oz BNPL firm Openpay fall into receivership, February 2023.

Authorities that have scrutinised BNPL have focused on consumer risks related to the payment solution, such as unconscious over-indebtedness. These reviews have mainly been carried out in countries such as Australia, the United Kingdom and the United States.^[11] See, for example, FCA or CFPB. New regulation in Sweden has also focused on consumer protection, such as the 2020 requirement on the order in which different payment options may be presented to prevent invoice purchases from being listed first.^[12] See, for example, Svensk Handel, Nya regler från och med 1 juli 2020 [New rules as of 1 July 2020] (2020). ^[13] The inquiry into over-indebtedness also recently submitted its report to the Swedish government on various legislative proposals to strengthen consumer protection for credit and reduce the risk of over-indebtedness. See Government Offices, Utredningen om överskuldsättning överlämnar sitt betänkande [Inquiry into over-indebtedness submits its report], July 2023. As yet, however, no comprehensive analysis has been made of the threats that BNPL could pose to financial stability. This is particularly relevant to the Riksbank given the extent of BNPL in e-commerce in Sweden and the fact that the providers offering BNPL in Sweden are banks or credit market companies that are dependent on deposits that are mainly deposit guaranteed for their funding. In other countries, BNPL operators typically do not have banking licences but instead work with partner banks.

This Staff Memo therefore analyses potential risks associated with BNPL from a financial stability perspective. Since up to 90 per cent of all payments in Swedish e-commerce today are made via the checkout solutions offered by six major Swedish BNPL providers, we focus on them in this report. Hereafter, we will refer to them as “the BNPL providers”.^[14] Collector Bank (Walley), Klarna Bank, Qliro, Resurs Bank, Svea Bank and TF Bank (Avarda). ^[15] See, for example, the survey by Market (link) conducted in February 2022, which maps the payment providers used by the 250 largest online retailers in Sweden. Note that all of these providers also offer banking or payment products other than just BNPL, such as savings accounts or unsecured loans.^[16] The figures presented for BNPL providers in this Staff Memo refer to their entire business operations, not just BNPL. This is because the providers do not report separate results for BNPL activities. According to annual reports for 2022, between 15 and 85 per cent of the providers’ revenues come from the Payments or E-commerce segments. As you can see in Diagram 5, BNPL providers have experienced a downward trend in their level of profitability in recent years.

Figure 5. Level of profitability of BNPL providers Net income/total revenue, per cent