This is why FIs need to take FI-PayLater serious!Banks Are Losing Out To Buy Now, Pay Later
The rise in BNPL is bad news for banks.
It’s hard to estimate how much payment volume banks lose because of BNPL. Given the demographics of BNPL users, it’s a good bet that debit cards—which generate interchange income for banks—are their payment form of choice, and that BNPL purchases cannibalize debit card volume.
In addition, banks lose interchange fees when users pay their BNPL bill directly from their bank account, or with a bank check,prepaid debit card, or Venmo.
Can Banks Compete For BNPL?
This threat, if not reality, of lower interchange revenue is too much for banks to ignore in 2024. As Nandan Sheth, CEO of fintech Splitit,wrote:
“Banks have not moved fast to address the consumer demand for pay later solutions embedded within the merchant purchase journey. Banks miss the critical ‘in-checkout’ moment, ceding ground to fintechs with integrated installment plans.”
Sheth believes, however, that banks have advantages in terms of scale, trust, and available credit: “The key to triumph in the ongoing contest for the future of BNPL lies in synergizing the strengths of banks to offer a distinctive set of differentiators through strategic partnerships.”
Pymnts.comagrees that banks have BNPL advantages, citing two points as evidence:
- Gen Z consumers trust banks more than fintechs.Pymnts.com wrote, “43% of Gen Z consumers said brick-and-mortar banks provided peace of mind that digital-native FinTechs could not.”
- Americans trust banks to detect and prevent fraud.Banks rank highly for protecting consumers against fraud and scams, with 55% of consumers ranking banks among their top-three most trusted institutions.
Banks Have a Hard—But Doable And Necessary—Road to BNPL Success
Pymnts.com’s arguments for banks’ “inherent advantages” are misguided.
There’s little evidence that “peace of mind,” “trust,” and concerns about scams influence consumers’ BNPL purchase decisions. Consumers trust the merchants and retailers on whose sites they make purchases. And repeat BNPL users are repeat users because they trust BNPL providers like Affirm, Klarna, and PayPal.
The Battle For BNPL Isn’t Just At The Point Of Sale (Or After It)
Reality: Banks are at a disadvantage—and a serious one at that—in any quest to capture BNPL volume.
Why? Because merchants and retailers use buy now, pay later as a tool to help influence consumers’ choice of products and providers—long before the consumer is in the process of making the purchase. As I wrote inBuy Now, Pay Later: The “New” Payments Trend Generating $100 Billion In Sales:
“What’s different—and important—about Buy Now, Pay Later is its place in thecustomer journey. Payment options typically come at the end of the journey. Today’s BNPL services influence consumers’ choices of products and providers earlier in the journey.”
