There are plenty of defining years in the history books, and as 2020 draws to a close, it’s almost certain that the global pandemic will ensure that this year is featured prominently. With events cancelled, launches delayed, and country-wide lockdowns, the way we work has changed forever. Still, for financial technology and surrounding industries, this was also a year of challenge and opportunity.
This December, The Fintech Times is asking industry leaders for their ‘View from the Top’ to gain an insight into the decisions behind the last 12-months. Today, we’re looking at the issue of “Buy now Pay Later”, hearing from Aman Behzad, Ansucha Iqba and Simon Rabin on their 2020 thoughts, plus a look ahead to 2021. Will there be a Happy New Year? Read on…
Buy Now Pay Later programmes are steadily increasing in popularity, particularly this year with the pandemic causing financial problems for many. The idea is what it says on the tin, you buy your products and receive them and pay back the cost with payments spread out over weeks or months. While not a new concept by any means, this form of alternative financing is gaining popularity, with a number of fintechs cropping up to cash in on the demand. In this View from the Top, companies Royal Park Partners, Spotti and Chip outline their own 2020 experience.
Aman Behzad is the founder and managing partner of fintech-focused corporate finance advisory firm, Royal Park Partners. In his opinion, the younger generations have been leading the trend of buy now pay later services.
“Retail financing trends are rapidly evolving. Millennials and Gen-Z have little love for traditional banks and are seeking digital, innovative, and transparent ways to do financial purchases. Whereas traditional lenders are facing massive competition at the point of sale from more tech-enabled challengers that are able to service customers’ needs faster, more flexibly, and cheaper. The average credit card holder is a decade older than the average users of ‘buy now pay later’ (BNPL) services.
“Incumbent banks are falling behind, with BNPL providers such as Paypal, Zip, Afterpay, and Klarna growing their books by more than 20% p/a vs credit card lending growing at around 5%. Traditional lenders are looking for solutions to fight back.
“Buy now pay later providers are focused on high-quality customer user experiences. They are trying to move away from being seen as high-cost short-term credit providers to being considered a true utility/provider of convenience. They are making strong investments in their technology and services to offer great user experience, cost-effective financing, and create a strong brand. This is to move from being an undifferentiated financing provider (as banks are perceived) to being the true ‘owner’ of the customer. Once the customer is ‘owned’, BNPL providers will seek aggressive merchant discounts to drive more revenues for themselves, increasing their power over merchants. Through targeted offers, buy now pay later providers will be able to influence where goods are purchased from in the future. This will lead to consumer protection and anti-competitive legal actions in years to come.
“We will also see buy now pay later providers to continue to grow at extraordinary rates for the next 5-10 years. However, buy now pay later companies will revert to much slower growth rates as traditional banks integrate new technologies into their offering in order to meet the demand for these services.”
Anuscha Iqba has over 14 years of experience in investment banking and alternative asset management. She is currently CEO of Spotii, the MENA regions leading Shop Now Pay Later platform. She agrees that buy now pay later services are popular in part due to their customer-centric approach.
“We launched in April, pretty much during the height of pandemic fear with the aim of supporting our merchant partners grow and providing consumers with a friendly flexible way to pay that they could trust. Our product has really helped people enjoy what they love today without worrying about excessive fees, charges or penalties. Given the customer-centric nature of our service, we have seen it accepted both by merchants who want to provide a value-added service to their customers and by consumers who are looking for a secure easy to use product in these uncertain times.
“In this region, cash has always been king, but we saw that changing, and the pandemic further fast-tracked the shift to digital payments. Given the demand, launching in KSA has been one milestone we are very proud of. Aligned with Saudi Arabia’s Vision 2030, we have designed our product in a way that would really help accelerate the Kingdom’s e-commerce and digital payment ecosystem.
“With expansions across the GCC, a continuous cycle of product enhancements, and an exponentially growing userbase, we are ecstatic to see more of what’s to come”
Simon Rabin is CEO of Chip, an automatic savings app using AI to help customers get better returns. In his view, the pandemic has seen an increase in personal financial services providers.
“I don’t want to be the millionth person to say that the events of the past year have been unprecedented, but the simple truth is that not only did 2020 have an unimaginable impact on the global economy, people’s finances and their financial goals, but it also levelled the playing field for financial providers.
“Based on our own data, saving figures rose sharply this year, whereas people’s financial goals shifted towards the long-term priorities and financial security. In addition to that, spending dropped significantly, having a knock-on effect on the fintechs focussed on making it easier to manage your spending.
“Given how unpredictable the events of 2020 have been, I don’t want to make any concrete predictions for 2021. Having said that, I think one trend that will take centre stage is democratisation. 2020 has already dealt a huge blow to the big banks and their ability to adapt quickly and offer competitive financial products, and I think that 2021 will allow fintech companies like Chip to claim a larger portion of the personal-finance market. Now more than ever, consumers are seeing that one engineer at a fintech company can build a product that will benefit them far more than what 20 suit-clad men and women from the City could sell them.
“The fintech revolution is nothing new but I think the winds of change are blowing stronger than ever.”