Banks Jump on the Bandwagon of the Buy Now Pay Later Model

Buy Now, Pay Later (BNPL) has forayed into the financial landscape as one of the most sought-after modes for purchase financing among millennials and the Gen Z population. Customers are counting on the BNPL model, owing to engaging apps that offer multiple features. It includes targeted offers, wishlists, and budgeting tools. BNPL brands are resonating with millennials, owing to simplicity and cost. 

In a layman’s language, BNPL services enable customers to buy a product or service and pay later in interest-free instalments. Undoubtedly, it has sent shockwaves in the credit card industry. Tech-savvy millennials and gen Z are banking on the budget and user-friendly alternative to credit cards. Fortune Business Insights™ estimates the buy now pay later market size to reach USD 90.51 billion by 2029. 

Credit Cards are Losing their Shine

In retrospect, the aftermath of the 2008 financial turmoil compelled millennials to do away from a debt-friendly approach. Customers have become wary of the fee (hidden) implications of credit cards that can lead them to a debt trap. Consumers have also experienced a tough process in accessing credit cards. With confusing jargon and high-interest rates, traditional banking services have not been attractive to the new generation. Buy now, pay later service providers could cash in as there is no hefty penalty with BNPLs. 

Banks Riding on the BNPL Wave

For years, banks have shunned BNPL; however, they could make inroads into the BNPL landscape. Banks seeking long-term growth could shift their focus on the buy now, pay later model. It is gradually emerging as one of the fastest-growing e-commerce domains globally. Banks could potentially launch BNPL service apps to engage customers and keep abreast in the tech space in the long run. 

A few banks, such as Santander, Revolut, Monzo, and Barclays, have forayed into the BNPL industry. To illustrate, in May 2022, National Australia Bank announced inviting customers to pre-register for the rollout of buy now, pay later offering “NAB Now Pay Later.” The virtual card reportedly features biometric fraud detection to protect customers from theft and fraud. In January 2022, Santander announced the launch of a new buy now, pay later platform Zinia in the Netherlands. It is worth noting that the company launched Zinia in Germany in 2021 and claims to have acquired more than two million customers.

Visa and Mastercard are gearing to jump on the bandwagon and hop on the BNPL ride. In October 2021, Mastercard and Visa contemplated launching their respective BNPL platform in India. These global card networks are seeking card-issuing banks and partners to launch platforms. It would leverage online merchants and retail brands to directly join hands with banks. 

Banks could enter into the BNPL industry through these options:

  • Provide Line of Credit to Fund Loans
  • Acquire BNPL Credit Portfolios
  • Partner with E-commerce Platforms
  • Collaborate with BNPL Companies

Traction for commercial BNPL platforms will be pronounced among small businesses. According to a Mastercard-commissioned survey in 2021, 80% and 70% of respondents in Singapore and India, respectively, exhibited an interest in using an instalment product meant for small businesses. In November 2021, Mastercard rolled out buy now, pay later for small businesses in the Asia Pacific. 

Tapping into BNPL Trend

BNPL has come up as a disruptive model in the finance industry, bringing a paradigm shift in the way banks can engage with their customers and boost revenue. In a bid to retain old customers and attract new ones, banks could collaborate with service providers. There is no denying that the BNPL trend received impetus during the COVID-19 pandemic when a massive portion of consumers moved online. Millions of consumers during online shopping sought interest-free credit at checkout points as cash-strapped shoppers warranted the service owing to part-payments for products or services without additional fees.

The BNPL platform is here to stay and will continue to evolve with an increased focus on innovations and advanced technologies. However, the question is, can the buy now, pay later service be one of the biggest financial innovations in reshaping the financial sector? The acceptance of BNPL platforms and services across customers & industries and regulatory intervention to protect merchants and customers will hold the key to shaping the future of BNPL in the ensuing period.

About the Author:

Sunil Kumar Jha has been a part of the content industry for four years. He focuses on penning down articles across various topics, spanning from business and technology to trade, finance, and the English language. Sunil brings forth the expertise of intensive research and a strategic approach in his pieces. He is pursuing Masters in Journalism and Mass Communication.