Merger and acquisition trend accelerates in the global buy now pay later sector
Even though the adoption of buy now pay later schemes has continued to grow in 2023, firms have been finding it difficult to achieve profitability. The inflation-led macroeconomic environment has had a severe impact on the bottom line of many buy now pay later firms worldwide. The uncertain economic conditions have even led to the downfall of big names like Openpay and LatitudePay. Industry leaders like Klarna, on the other hand, have seen their valuation decline significantly.
Amid the ongoing consolidation in the market, some of the firms that are struggling to extend their runway have turned to merger and acquisition strategies to keep their business afloat. Uplift, which offers BNPL services for travelers, is among the providers that have chosen the strategy.
Upgrade, which offers personal credit lines and other consumer financial products, entered into an acquisition agreement with Uplift in July 2023. The US$100 million cash and stock deal will see Upgrade further improving its product lines through the acquisition of Uplift.
For Uplift, this is not the ideal exit, as the firm had recorded significant growth during the pandemic outbreak. Since its inception, the firm has raised approximately US$700 million in debt and equity. In its Series C round alone, the firm secured US$123 million at a valuation of US$195 million.
According to Upgrade, Uplift initially reached out to the firm in May of 2023. This was to inquire regarding a potential strategic investment in the BNPL provider, which was looking to raise its Series D round. However, Upgrade believed that a potential acquisition made more sense for the firm, as it would enable it to further expand its product offerings and customer base.
The acquisition of Uplift will add 3.3 million users to Upgrade’s platform and will also boost the prospects of its initial public offering, which is on the horizon. Furthermore, the purchase will also enable Upgrade to expand its loan book, as it seeks to offer nearly US$10 billion in credit by the end of 2023.
The travel market is growing at a rapid pace after the global pandemic outbreak. Uplift, which happens to be one of the leading players in the travel-focused BNPL segment, also has a wide distribution network. The firm had secured partnerships with 300 airlines, hotel chains, and cruise lines. Upgrade is getting access to it all for just US$100 million, which otherwise would have taken much more if built from scratch.
With travel becoming more expensive, the demand for BNPL products is expected to remain high from the short to medium-term perspective. Consequently, PayNXT360 expects Upgrade to generate high revenue through its purchase of Uplift, which has operations in the United States and Canada.
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In the United States, the BNPL industry is expected to grow at a significant rate, based on PayNXT360's estimates. BNPL payments, for instance, are expected to grow by 19.0% on an annual basis to reach US$112.9 billion in 2023. From 2023 to 2028, the BNPL payment adoption is projected to grow at a compound annual growth rate (CAGR) of 10.4%. The steady adoption rate of the payment method will also aid the growth of Upgrade from the short to medium-term perspective in the United States.
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In another acquisition deal, NymCard acquired Spotti in the United Arab Emirates in June 2023. In the MENA region, NymCard is one of the leading payment infrastructure providers. The acquisition of Spotti will provide NymCard with Spotti's technology, risk engine, and market expertise to offer credit-on-demand products in the region.
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The acquisition came at a time when Spotti was beginning to wind down its operations in the United Arab Emirates. The firm, notably, also acquired a BNPL license from SAMA in June 2023. Since its inception, Spotti has amassed more than 1 million registered users and partnered with 1,500 merchants. The purchase will extend the runway for Spotti, whereas NymCard will be able to offer a more comprehensive suite of payment solutions across the Middle East and North African region.
Based on PayNXT360's estimates, the BNPL market in Africa and the Middle East is expected to grow at a compound annual growth rate (CAGR) of 17.8% from 2023 to 2028. During the period, the gross merchandise value in the region will increase from US$9.49 billion in 2022 to US$27.7 billion by 2028.
Going forward, PayNXT360 expects more mergers and acquisition deals to emerge in the global market, as consolidation is expected to continue in H2 2023. Despite consolidation, the adoption of BNPL schemes has remained strong worldwide. During the 2023 Prime Day sales event, the usage of BNPL products have recorded an estimated increase of 26-31%, compared to last year. This is a clear indication that the demand for BNPL has remained strong and the trend is projected to further continue from the short to medium-term perspective. In line with this trend, other global players are also incorporating the BNPL strategy to push forward their commerce ambitions. TikTok, for instance, entered into a strategic collaboration with Atome to provide BNPL payment options on its e-commerce marketplace in Malaysia. The Southeast Asia market has emerged as a high-growth region for TikTok over the last 12 months. The incorporation of the BNPL strategy is expected to further aid the growth of TikTok over the next three to four years. The projection comes on the back of the accelerated adoption of BNPL services in Malaysia and other Southeast Asian countries.
