Swedish fintech Klarna is considered the spearhead of the BNPL industry. With countless merchants as partners and flexible invoice purchasing, the Swedish fintech has established itself as a popular payment method even outside the borders of Europe. In recent weeks, however, Klarna has generated rather unfavourable attention. The massive downturn, which reduced Klarna’s valuation from $45.6 billion to $6.7 billion, stunned the fintech world and prompted industry critics to revisit the BNPL issue. But it’s a mistake to equate all other BNPL fintechs with Klarna.
Credi2, for instance, is very different from Klarna and other B2C-focused BNPL providers. Credi2, which has been chosen by Apple, Volkswagenbank, and most recently Deutsche Bank as a technical partner for Buy Now Pay Later offerings and subscription models, sees an encouraging future in the fledgling industry through its white-label solutions.
1. The fintech industry continues to grow: Devaluations of fintechs which were hyped in 2021 such as Klarna, Stripe or Robinhood, are currently very present in the media. But these do not represent the entire industry. Fintech startups received a total of $32.4 billion in funding in Q1 2022 – 27% less compared to the same period last year, according to Dealroom. Tilta (Germany) and Refundid (Australia) are two examples of BNPL startups and scaleups that have demonstrated strong investor interest in the sector. Despite having to make a big downround, Klarna raised a whopping $800 million in venture capital.
2.Upcoming Regulation: One word that may send chills down many founders’ spines is actually a benefit for the BNPL business: Regulation. Both in the EU and the US, the BNPL model is facing stricter regulations. Since fintechs like Credi2 do not see themselves as opponents of banks but as partners due to their white-label solutions, they can combine the best of both worlds. Banks offer regulatory compliance, while Credi2 provides the technology.
3.Strength of incumbents: As partners of BNPL fintechts, European banks bring their classic strengths to the table. They have high liquidity, expertise in creditworthiness and scoring, as well as a large customer base in both the B2C and B2B sectors. Banks are excellent partners for fintechs because they provide access to new customer groups that other BNPL players would have to go to great lengths to obtain.
4.White label: BNPL does not have to be about building super apps that are designed as a new touchpoint and front-end for the end consumer. White label solutions enable merchants to integrate BNPL products directly into their existing online stores, eliminating the need to outsource the customer journey to a large player seeking to become an online shopping portal. With Credi2 and Deutsche Bank’s BNPL solution, for example, thousands of merchants will be able to launch their own flexible payment method without having to rely on Klarna & Co. Consumers will not be charged high reminder fees since Deutsche Bank conducts a risk assessment and has a high level of liquidity.
5.Helpers for online retailers: In recent years, e-commerce has largely migrated to a few players, first and foremost Amazon. However, an increasing number of merchants have realized that if they do not want to be completely outsourced to the US giants, they must develop their own e-commerce offerings. With Credi2 and European banks as partners, they can offer their own sought-after financing solutions in their own stores, strengthening their own brand and sales rather than working for US corporations.
6.BNPL growth in brick and mortar stores: E-commerce will continue to grow, but the greatest BNPL potential is still at the POS (point of sale). However, few players are properly positioned for this because most have focused on booming e-commerce. It is now clear that e-commerce has hit a glass ceiling as a result of inflation following the Covid pandemic. This makes BNPL offers in brick and mortar stores even more appealing. Now is the time to seize this opportunity.
7.Rising interest rates increase refinancing costs for all-in-one BNPL providers:
The reversal in interest rates is here. Klarna & Co. usually have banking licenses, but they have to borrow money from other financial institutions to refinance the loans they issue. This however, is an extra cost due to increased interest rates. With banks in their corner, white-label providers that focus solely on technical solutions have a clear competitive advantage. Banks already have the necessary liquidity and don’t need to obtain additional loans for refinancing – a significant competitive advantage following the interest rate reversal.
8.Head start in the subscription age: Only a few fintechs have recognized that there is another thriving financing solution in addition to BNPL: subscriptions. Subscription models are increasingly used to sell everyday items such as smartwatches, notebooks, smartphones, e-bikes, and e-cars. Online retailers are looking for such payment solutions, and Credi2, with Apple as a partner, has already built up great expertise and implementation know-how regarding the subscription economy. The benefits speak for themselves: consumer baskets grow by up to 20%, the repurchase rate increases threefold, and retailers gain access to Generations Y and Z, as this target group prefers subscription models and no longer values ownership.
9.BNPL scale-ups continue to grow: Huge layoffs in various BNPL fintechs have been a hot topic in the media in 2022. This overlooks the fact that many other fintechs continue to grow – as does Credi2.
10.Fintechs as growth drivers: A recent McKinsey study points out that the German banking market urgently needs the innovative power of financial startups. Currently, not a single German financial institution can be found among the 50 largest banks worldwide.
“Fintechs are fueling hopes for a renaissance of the German financial sector, which could once again become an international driver of innovation and growth” the study says.