The bank prepares to join the market Buy now, pay later
Banks are preparing to adopt buy now, pay later (BNPL) – probably in a major way.
The urgency is there as more than 40% of consumers would prefer to use their bank’s BNPL options instead. other companies. However, the banks arrived relatively late in the game.
Over the past few years, a number of digital-only players have come to market, grown huge, and been swallowed up in mega-deals worth tens of billions of dollars. PayPal and Square stand out here, having bought companies like Afterpay and Paidy, intending to further develop their ecosystems.
Adam HughesCEO of Quantity; Kapil Mokhat, West Cape General manager; and Matt Norton, Santander Bank North Americatold Karen Webster of PYMNTS that traditional financial institutions (FIs) can leverage their core strengths of scale, and in particular trust, to carve out a place in BNPL.
Read more: Report: 70% of BNPL users would use bank payout options, if available
“Banks have an opportunity to be a major solutions provider in this space,” Norton said, adding that “they are no strangers to credit products either.”
Overall, he said, banks have been watching the evolution of BNPL with an eye on how they can add additional value.
“The wait is over,” Norton said.
Take inspiration from P2P
WestCap’s Mokhat said what we’re seeing in BNPL could be similar to what we’ve seen in peer-to-peer (P2P) payments: Venmo came to market as pure-play and took it stormed, then banks launched Zelle about five years ago. Their market shares have grown exponentially since then, and both pure gaming and banking games are doing very well.
In other words, according to Mokhat, the BNPL landscape will not be all about FinTechs versus banks – the only real concern is to serve the consumer well and profitably.
As for meeting those expectations, the banks might need a little help enabling BNPL – and would do well to cast a wider net. Amount’s Hughes said BNPL’s offerings aren’t just appealing to low-income Millennials and Gen Z customers, and banks that focus solely on those demographics are missing out on business. together.
“There is strong interest in BNPL across generations,” Hughes said. “Even in the segment of earners over $100,000. These are valuable areas where banks can retain their best customers.
See also: BNPL interest issued by the bank cuts across all demographic groups
PYMNTS data highlights breakthroughs made by BNPL: 50 million consumers report using BNPL options in the past 12 months. Nearly two-thirds of BNPL users have increased their use of BNPL in the past year, and 52% of consumers have at least some interest in using BNPL over the next 12 months.
Millennials and bridge millennials would be more interested in using BNPL products from their banks than products from companies such as Affirm, Klarna or PayPal. In addition, 36% of those who do not use the BNPL would be more interested if their bank offered it.
The advantages of banks
As for strategic advantage: Trust in the credit provider is the most relevant factor when consumers choose short-term credit products. FIs and banks need to take this into account when pushing BNPL into new markets and investing in new offerings.
See also: Banks should buy to buy now, pay later as BNPL fintechs move into banking and card spaces
Along with decades of experience and deep customer relationships, banks have an inherent advantage, panelists told Webster: treasure troves of data that give them insight into approval rates and even allow them to offer more loans. important than FinTechs.
Banks, of course, are everywhere and have the scale (thanks to merchant acceptance) to make BNPL ubiquitous. It’s also useful for consolidating a client’s financial statements, creating a holistic view of checking, credit, savings, and BNPL accounts.
Banks have the opportunity to educate their consumers about BNPL, Hughes said, and have the capital to expand lending well beyond the scope of the four-payment-in-eight-week plan. Norton said consumers are less familiar with vendors and point-of-sale options than they might be, which opens the door for banks.
“There is a big opportunity to expand this arrangement to larger transaction sizes and longer terms to lower that monthly payment, more flexible repayment schedules, higher approval rates,” Hughes said. “Banks, with their access to data, are in a much better position to do this.”
Banks need to help merchants understand – especially where credit cards are accepted – that BNPL can help boost customer acquisition, conversion rates and basket sizes.
Hughes said, “Integrating this product into this digital experience has to be seamless or you won’t get the conversion. You’re going to see banks start partnering with card networks.
Of course, with a relatively new loan product, there are inherent risks. It is well known that regulators are actively reviewing BNPL’s credit trends.
Mokhat said “the broader threats relate to responsible lending.” Banks, he added, have underwriting advantages, given decades of experience.
Hughes said “budgeting in times of inflation” will be a major concern for individuals and families, and BNPL’s predictability and transparency will continue to be attractive.
A peaceful coexistence, for a bit
We are heading towards what could be a peaceful coexistence as banks and FinTechs extend BNPL to end users. But, as WestCap’s Mokhat observed, consumers will ultimately choose providers who can meet a wide range of needs.
Klarnas around the world offer a host of services, Mokhat said, as do banks. The market is certainly quite large, given that the 50 million individuals who have tried BNPL still represent a fraction of the overall population.
As Hughes told the panel, “Banks have woken up to the reality that this asset is exploding and it’s not going to go away.”
See also: Santander’s BNPL product Zinia expands to the Netherlands