BNPL (buy now, pay later) is a global trend in the world of finance. We can imagine many things under these terms. We can use them to postpone our payments, to split our spending into thirds or quarters, to use a virtual card for payments, or to pay by taking pictures of invoices. They can even be an effective tool in the fight against inflation, which is a hot topic at this moment. There are simply many ways in which BNPL services can simplify payments and improve cash flow, and new ones are appearing on the market all the time.
Yes, the financial markets and economies are currently experiencing turbulent times and people are careful about experimenting with their finances. BNPL still influences how people pay and it still keeps on bringing important innovations that push digital payments forward. The recent announcement from Apple about their entry onto the BNPL scene proves this. But this doesn’t mean that the current crisis does not open some questions about the future of BNPL.
Banks and fintech working together?
One of the directions BNPL may take in the future, and one I believe in, is potential cooperation with banks. Fintech and banks are two segments that are mutually irreplaceable and represent a kind of counterpoint. While banks are colossal institutions with mass usage, fintech companies are faster technology innovators by comparison. Although the two institutions are fundamentally different, there is a chance that they could start working together in the future.
You may be wondering why you haven’t found the option to defer a payment or split a larger amount into multiple interest-free installments in your online banking for a long time now, for example. For many customers, such an option would be appealing. The data confirms this. For example, according to a survey by Australian fintech company Zip, 36 % of people who have not used BNPL services to date would start using them if their bank offered it. Even 80% of those who currently use BNPL services said they would like to see these services offered by their bank. These numbers make sense. Many, especially older people, think conservatively and are not willing to sign up for another financial service and install another app on their mobile phones.
Obstacles on the way to modern financial products
Although banks have the necessary capital, they still do not offer financial products of this type to their customers in the vast majority of cases. There are a number of reasons why this is the case. When implementing BNPL services, banks are particularly faced with the high complexity of their own structures, in which change of this nature is a highly complex process. Moreover, they lack the courage to implement similar financial products in many cases. If they do commit to implementing BNPL, they often do not have the appropriate tools to do so. If they do, the resulting product is unlikely to be simple enough to be easily understood by the client and competitive given the complexity of the banking system and thinking.
An important difference that also distinguishes banks from fintech and poses a significant barrier to the implementation of BNPL services is the very different view of their clients and their aversion to risk. Fintech views the customer through a constant flow of big data and builds up a detailed picture of the customer that allows them to take more risks and rely on the likelihood of paying their spend by the deadline. However, the banks’ approach in this respect is quite different. It looks at its clients through a very conservative and simplified lens, through which it has no chance to get to know the details of their finances and only observes the most significant variables, such as their income or debts. The limited knowledge of its client then leads the bank to view him as too much of a risk to whom it will be afraid to provide similar services, even though, on closer inspection, it is a reliable payer.
The vision, however, is that fintech would help banks break through these barriers and be a useful partner to help them bring the innovative technologies they have developed into mainstream practice. After all, we can already see this happening in some individual cases today. In such cases, they are seeking to do what was hinted at the beginning of this article – they are seeking to link a fast innovative „formula” with a distributor whose services are used by all of us. Perhaps this will turn out to be the optimal route for BNPL fintech in the future.
