Why banks should adopt “Buy Now Pay Later” (BNPL)
Buy Now Pay Later (BNPL) has emerged as one of the most popular trends in open banking, digital lending, and retail, with an expected projected value of $3.98 trillion by 2030. Big businesses are making money by allowing customers to make fast purchases without having to deal with the discomfort of paying for them right away. With such a profitable market and enormous potential for future expansion, banks must follow in the footsteps of the BNPL sector to avoid being left behind. Buy now, pay later, also known as shop now pay later services, is quickly replacing the conventional technique of getting bank credit, a personal loan, or a debit card to buy high-value goods or services.
Buy-now-pay-later (BNPL) is currently the fastest-growing online payment option in many economies as a result of the convergence of digitization, past years’ pandemic accelerated transition to online purchasing, and the growth of younger, active consumers. Customers appreciate having the option to make an immediate purchase and spread out their payment over multiple installments with no fees or interest if made on time. Additionally, BNPL is attractive to retailers as a technique for boosting sales and converting more customers.
Banks are getting ready to adopt buy now, pay later (BNPL), potentially in a significant way. More than 40% of consumers prefer to use BNPL choices from their banks rather than those offered by other businesses, but there is a need for urgency. Banks, meanwhile, have gotten into the game quite late, which makes it hard for those financial institutions to dominate the BNPL market and be better than already successful companies.
BNPL Popularity is Still Increasing
BNPL first grew in size in Australia and New Zealand before fast escalating in Europe, where the key brand leaders have emerged. In less than a year, the market in the UK increased to five million users. The US took longer to adopt BNPL, it is currently forecast that growth will meet or exceed that of some regions of Europe, with a predicted compound annual growth rate (CAGR) of 20.7 percent from 2021 to 2028.
These days, more people are using Buy Now Pay Later. Since 2019, the use of BNPL and POS financing has increased thrice in the US. Even though younger people tend to use consumer financing, in previous years all age groups have used it. There have been some misconceptions that BNPL financing is more popular with consumers who have lower income levels; however, recent figures indicate that popularity is rather evenly distributed across all income level categories. The BNPL option is more appealing to people with lower credit scores.
The Risks of Unregulated BNPL Services
Many European nations already have laws prohibiting credit or retail websites. Due to the clients’ massive debts to several BNPL financing platforms and the fact that the majority of them were not subject to any rules, the Consumer Financial Protection Bureau launched an inquiry in the US last December.
The BNPL model also causes the regulators to have a lot of concerns. When consumers used BNPL for their payment plan, we can see that in the cases of consumer financing for merchants and merchant financing for customers, 25% of the revenue for financing platforms came from missed payments. Another major issue is the lack of customer credit transparency. According to statistics, 10% of bank clients who used BNPL were already behind on their payments.
Banks Should Be More Active on the Market
Due to the fact that the majority of BNPL businesses that offer consumer financing to retailers are not facing federal banking requirements. It is obvious that those unregulated finance platforms, which issue consumers with an increasing number of debts, will expose them to risks over time.
Unregulated BNPL enterprises are already a problem and are facing opposition in several countries, like Australia and UK, because they provide customers with a variety of point of sale financing alternatives that, in most cases, leave them with enormous debts they may not be able to repay.
As it will be profitable for them to gain more clients and give them the opportunity to become industry leaders in BNPL services, this is the part where the banks should play a role. It will also be crucial for future customers, as it will help them avoid the risks of massive debt from unregulated consumer financing platforms.
How are the banks better? Because banks are regulated, both consumers and retailers can feel secure when breaking purchases into payment agreements.
Banks will need to decide whether or how they want to enter this industry as BNPL continues to grow. If they will not participate on time and delay their actions, they may be left without a huge number of customers with various credit demands.
How Can Banks Dominate
When merchants realize there are better and more secure choices available, they will switch to banks. Banks have the ability to plan for the future and play the long game. They can also modify consumer financing for small businesses to increase their clientele from numerous companies. Smaller merchants will be pleased to collaborate with financial institutions as well since this will help them avoid being burdened by bad BNPL debt.
Although fintech is currently more popular in the market, there are some steps with which the banks can overtake them. Due to the fact that traditional lenders can provide significantly better interest rates to both businesses and consumers, other Buy Now Pay Later services will also drop their interest rates.
Point of sale financing can also be available to BNPL banks. Numerous banks in Latin American nations have adopted BNPL at the point of sale using credit cards. Because it is so comfortable and simple to use, POS financing draws clients. Customers may easily spread out their payments over time. In pricey areas like healthcare or maintenance, it is quite possible for banks in the US and Europe to employ the same POS financing approach.
There are numerous examples of banks aiming to dominate the BNPL industry. For instance, we witnessed how The Commonwealth Bank of Australia (CBA) developed a new product called StepPay that has lower merchant charges and is a significant competitor on the BNPL market. Others are attempting to invest in infrastructure to create better apps or services and provide a better customer experience.
Fast innovation is more important than ever for legacy banking organizations to stay up with the quickly evolving digital market. These companies require clever, economical solutions. One strategy is implementing Bank BNPL White label products through partnerships with third parties. By implementing application programming interfaces, banks may react fast to new issues like Buy Now Pay Later. Products under the BNPL white label can change the market quickly and increase the number of customers for the BNPL banks.
Offering a retroactive plan that needs credit card ownership is not the only strategy that banking providers should employ if they want to enter the BNPL market with the greatest potential. As an alternative, they ought to provide a variety of financing solutions, and these, ought to be publicly accessible at the moment of sale.
The seamlessness of having Buy Now Pay Later available right away at the time of purchase, whether online or in-store, is eliminated by the retroactive model. Younger customers’ resistance to credit is also significantly influenced by the revolving nature and numerous hidden costs associated with credit cards. They, therefore, turn to pure plays for BNPL solutions as a result. BNPL is already available at the point of sale from some local banks in addition to card transactions.
BNPL Banks’ time to respond to this action is limited. They also have the resources, financial stability, and customer confidence to match these services. If they want to keep the loyalty of their younger clients, they cannot let this chance slip by. Even though it won’t be simple, it will be great for the banks themselves to be a part of one of the biggest and most well-liked financing solutions, and it will also make consumers safer to know that their debts are regulated and cannot harm their future finances. In the end, we can say with certainty that banks have a great future in the BNPL and consumer financing, if they understand how different market segments operate and learn how to appeal to the increasing groups, they may increase their market share in BNPL.
ChargeAfter is a leading multi-lender platform for Buy Now pay later (BNPL) Consumer Financing. It connects businesses with the most reliable lenders, enabling them to offer customers the greatest financing solutions. With the best system of Waterfall Financing, ChargeAfter guarantees BNPL lending to every shopper, by matching the most relevant lender to every client. Using the unique consumer financing technology, ChargeAfter provides all parties, merchants, lenders, and consumers, with the best shopping experience. Phoenix, MUFG, VISA, Bradesco, BBVA, Synchrony, PICO Partners, CITI, Propel Venture Partners, Plug and Play, and other companies worldwide are among the investors of ChargeAfter.
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