With its exponential growth and potential impact, buy now, pay later (BNPL) is not just a passing trend but a transformative force in the world of payments.
Paul Chandler, sales director – Europe for payments technology specialist Compass Plus Technologies, explores the significant implications of BNPL and how it’s reshaping the financial landscape, offering insights that are vital for understanding its evolving role in the industry.
BNPL is the ultimate buzzword; every publication from the Financial Times to Forbes is weighing in on its sustainability and long-term place in the payments landscape. From declarations from a recent Harvard paper that BNPL is “a table-stakes payment option and growth lever now. It is the new way to pay,” to the more cautious This Is Money, who describe it as the “new wild west of the borrowing industry,” what goes undisputed is that BNPL is here to stay.
More than 900 million people worldwide will use BNPL by 2027, compared to 360 million in 2022, according to Juniper Research and the most compelling reason for this popularity and growth is that it is predominantly driven forward by consumer demand.
By providing an avenue for affordability at a time where the cost of living is described as in crisis, BNPL has become popular not just amongst gen Z and millennials, but also increasingly with older generations including retirees feeling the constraints of living within fixed budgets.
To date, this space has been dominated by non-financial brands, however, new entrants in the form of traditional banks and payment networks are jumping onboard the BNPL train. Throw tech giants, Apple, amongst others into this giant melting pot, and it becomes a very interesting time for the payments landscape and the evolution of BNPL products on offer; whether card-linked, at purchase off-card, post-purchase off-card or even merchant-funded.
Uptake for market share was initially won by heavily focussing on driving new sales for merchants, with BNPL providers benefitting from rapid merchant acquisition and quicker customer onboarding, with soft credit checks and greater technological agility.
However, ongoing debates have quickly arisen around the authenticity of these players in terms of innovation versus consumer protection. Whose interests are BPNL providers serving, the merchant or the consumer? Is this just a new way for consumers to incur debt, or is it an innovative way of making payments more accessible to everyone, including the underserved? Is the increased ease of buying at odds with responsible lending?
These are not new concerns however, credit cards and even contactless payments sparked similar conversations. The issue that BNPL providers actually face is that of trust and loyalty. Regardless of stance, it is undeniable that BNPL providers are completely redefining lending within the payments industry and everyone is taking notice.
Enter banks. Banks are well-positioned to provide a more responsible approach to BNPL, they have more sophisticated scoring, more historical data on their customer behaviours and habits, and are better positioned to make more informed, financially responsible decisions. With these long-term pre-existing relationships, banks also have trust.
A recent survey by the Financial Brand found that 78 per cent of consumers would use BNPL financing options from banks where they already have account relationships, as banks can meet and understand their more complex product needs.
Many banks, however, lack the agility and flexibility of fintechs with their newer more nimble technology stacks. Instead, they are slower to manoeuvre and cautious in their approach. Given its wide-ranging appeal, FIs need to take a closer look at their customer segments to see how BNPL can be used to retain and engage customers by elevating their lending product suites in order to compete, and to consider partnering with a proven solution provider in order to speed up their time-to-market.
Competitive posturing and aggressive marketing across all entrants to the market means that consumers are already choosing where their loyalties lie. With Apple moving ahead with their offering and card networks such as Visa and Mastercard actively launching new services to ensure they get their piece of the BNPL pie, it has never been more pertinent for players looking to remain relevant to add BNPL to their payments arsenal. According to a recent report from the Consumer Financial Protection Bureau, “the financial and operational benefits over legacy credit products are real and sizeable” – the time to act is now.
Stay in the race
As the interest in embedded finance grows exponentially, and agile challenger banks are publicly gaining traction, the race for BNPL market share is well and truly on and anyone not actively getting involved will be left behind.
Those who come out on top will focus on building trust through responsible consumer lending with a solution built on agile technology in order to adapt and future-proof their business and brand themselves as a recognised and trusted BNPL provider.