The growth curves for Buy now, pay later solutions are on a steep upward trajectory. According to a study by Juniper Research, the global BNPL market will grow from $226 billion in 2021 to $995 billion in 2026 – thus quadrupling in value in less than five years. In Europe and North America, players from the start-up and scale-up segment are positioning themselves as new BNPL providers. With Buy now, pay later clearly one of the most significant online trends, it’s high time for traditional banks to get involved with it.
1. Embedded Finance: Be where the customers are
The diverse world of banking apps shows that physical bank branches will only be used for complex financial business going forward. A lot of people forget that banks offer many other services besides current accounts. BNPL represents a new digital channel – by using the right digital tools, things like purchases on invoice, installments and consumer credit can be integrated directly into eCommerce apps and websites.
“Banks need to be where the customers are,” says Strieder. “Financing options are best offered at exactly the time and place when the customer needs them. The COVID crisis has given eCommerce yet another significant boost and growth is strong. At the same time, considering the increasingly competitive environment, retailers need attractive new payment methods to ensure they close more transactions. BNPL is ideal for that purpose.”
2. BNPL opens up new revenue streams
For banks, consumer credit and revolving credit lines are nothing new. BNPL allows them to make a new opportunity out of these traditional financing solutions, packaging their existing know-how into a new product that’s a perfect fit for the booming world of eCommerce.
The exciting thing about BNPL is that banks can unlock new revenue streams in the shape of retailers. Digital financing options are usually structured in such a way that retailers carry the cost, while end consumers get things like instalment options without it costing them anything. “Retailers get a cash-flow benefit in that they receive the money immediately, paying a BNPL provider a charge for the service,” says Strieder.
While retailers can thus push for higher checkout completion rates, their customers get a tempting payment alternative – and the banks concerned get a new revenue stream.
3. Low customer acquisition costs (CAC)
As every Head of Marketing at an established bank knows, the cost of acquiring new customers through traditional channels is high. So BNPL shouldn’t merely be seen as a financing service, but as a channel for gaining new customers. Internet users who aren’t bank customers at all can stumble across the institution’s BNPL services via eCommerce portals – and then become customers.
“We understand that banks with BNPL can reduce their customer acquisition costs and thus get the chance to reach new, young target groups,” says Strieder. “While digital marketing (SEO, social media, etc.) can be very expensive, BNPL is a comparatively cheap channel whose role in the marketing mix shouldn’t be underestimated. This is a new way in which the lines between product and marketing are merging.”
4. Trusted brands have a head start
Start-ups and scale-ups have achieved a lot of success with BNPL in recent months and years. But, as payment providers, they’ve had to invest massively in something very important: their brands. They’ve had to use pop stars as ambassadors in order to build trust and brand awareness amongst customers.
“Banks have a competitive advantage over the new digital players because they have well-known brands that have built up customer trust over decades, or in some cases even centuries,” says Strieder. “Everyone knows the major bank brands, and in many families they have been the first port of call for money questions going back generations.” This is an advantage on which banks can really cash in as digital BNPL providers. They can combine their valuable, trusted brand names with a new payment and financial alternative.
5. A new touchpoint with young target groups
In a world of Instagram, TikTok and Snapchat, the nudge for a young person to buy something often comes via social media apps – usually in the form of influencers, recommendations or native ads. Jumping to the relevant online store takes mere seconds. No wonder a study by Kantar revealed that 81% of young people now buy online at least once a month. And according to a Credi2 survey, more than 70% of people between 18 and 40 would make use of financing options when buying.
For banks, BNPL is an opportunity to become an integral part of the ‘social shopping’ process. Integrated with the right partners Buy now, pay later is a new way for them to get in touch with Generation Z. And there’s another reason why younger target groups love BNPL: many of them don’t (yet) have credit cards. Thus BNPL is usually the only reliable way to purchase online with one simple click.
6. BNPL regulation is coming
The explosion in BNPL providers across Europe isn’t only down to big investments, the growth in eCommerce and the COVID crisis. The absence of a standardised regulatory framework (until now) has also been a factor. Compared to traditional credit finance, installation payments online involve fewer legal hurdles. But regulatory authorities in many countries, for example the United Kingdom, are watching the BNPL boom with great interest.
Fintech sector observers assume that the BNPL boom means new rules will hit the market sooner rather than later. That’s good news for banks looking to get into the game – they’re well accustomed to fulfilling regulations and will handle them better than some newcomers.