Why banks have to enter the BNPL business

As a technology partner, Credi2 offers established financial institutions the opportunity to quickly enter the new, rapidly growing buy now, pay later market with customized embedded finance solutions.

Europe’s banks are facing numerous challenges nowadays. High costs, low profits, more flexible payments, and accelerated digitization. Moreover, the growing competition coupled with customer expectations as well as major geopolitical uncertainties are increasing the pressure for new revenue streams and products.

banks bnpl

Winning new customers and keeping existing ones

Traditional financial institutions are having a hard time when it comes to new business, due to competitors such as neobanks. The massive trend towards buy now, pay later (BNPL) as a popular alternative to classic payment methods such as credit cards or instant transfer, offers the opportunity to win new customers in both segments, B2B and B2C. The market is huge and expanding: it is expected to grow from $266 billion in 2021 to $995 billion in 2026. Banks cannot miss out on this opportunity. Quite the contrary – they absolutely should participate in the market since they show unbeatable advantages that fintechs do not have.

Banks shouldn’t let Klarna and Co. capture their customers and retailers. Everyone in the industry knows that acquiring new customers and winning back lost ones is quite expensive. Embedded finance is the answer because it automatically converts users of e-commerce pay later solutions into new customers. Decision-makers in financial institutions know they need to take action quickly, as 7 out of 10 managers fear that they have already lost the interface to the customer.

A tech partner for financial institutions

While other European BNPL providers are trying to establish themselves as banks, the embedded finance specialist Credi2 is taking a different approach: Credi2 is the strategic partner for established European financial institutions enabling them to enter the BNPL business and thus also to meet the merchant demand for a better BNPL solution.

“Established banks bring perfect assets to the BNPL market that many fintechs don’t have,” says Christian Waldheim, Co-CEO of Credi2. “They have brands with a very high level of trust, they already meet the high requirements of the regulatory authorities, they have the necessary liquidity, and have great expertise in financing solutions. That is why they are our preferred partners for which we can provide our embedded finance technologies. We are practically the white label Klarna for banks.”

Embedded finance is the approach of integrating financial services into non-bank products and services. These include payment methods such as buy now, pay later solutions and subscription models that are embedded in a seamless customer journey at the checkout online and at the point of sale. Banks are therefore placing their offers to where consumers pay. Fintechs enable merchants to offer such products with the help of financial institutions, either as a white label solution or co-branded.

IT, talent, and know-how are missing

Banks are very well aware of embedded finance. According to a Credi2 survey, 63% of institutions say that embedded finance fits their business model and strategy. The most important motives: 62% want to win new and more importantly young customers, and 61% want to meet the desire for flexible payment methods. But what prevents banks from getting into embedded finance? 51% have already recognized that they underestimated the potential; 41% lack the staff and IT, and 34% don’t have the necessary know-how to implement new digital financing solutions. This is exactly where Credi2 comes in as an embedded finance specialist and combines its own tech know-how and implementation capabilities with the banks’ strengths.

The banks’ advantages

European banks can’t be intimidated by the big tech players and fintechs with lots of venture capital, as they bring many strengths to the BNPL business that many B2C fintechs don’t yet have:

  • The brands of the banks enjoy a high level of trust among customers and have a great image.
  • Banks have the necessary liquidity to implement embedded finance.
  • Banks have trusted relationships with merchants and can offer this added value and entry into the BNPL business.
  • Banks already comply with the strict regulations of the financial industry and offer maximum protection to consumers.

The combination of these strengths with the skills of an agile fintech like Credi2 can be very powerful in the BNPL market. Numerous examples prove this.

From installment purchases to quick loans

Deutsche Bank, Volkswagenbank, and Raiffeisen Bank International (RBI), are all large financial institutions that rely on Credi2’s white label fintech solutions. It is possible for banks to launch their own BNPL solutions within a few months, which can then be integrated both online and at the point of sale. Digital financing solutions such as purchase on account, installment purchase, or quick loans can seamlessly be integrated directly into the purchase process in online shops and at the POS (point of sale) – and this, in turn, opens up direct contact for banks to new customers.

“Credi2 has already proven that it can implement tailor-made pay later solutions for well-known banks in a short period of time. Examples of this are the quick loan app cashpresso for RBI or FINANCE A BIKE, a flexible financing solution for bicycles by Volkswagenbank,” says Waldheim from Credi2.