BNPL: how banks can dominate this trillion dollar industry
Buy Now, Pay Later (BNPL) is no longer just a one-stop solution. Can you explain what the differences are between the different types of BNPL solutions?
First of all, it is important to know that choosing an BNPL solution is not as simple as buying a standard Software-as-a-Service (SaaS) product. There are many variations that meet different needs, use cases, and risk profiles.
The first step, at the most basic level, is deciding between direct-to-consumer (D2C) solution providers and white label solution providers. D2C fintech companies typically enter the consumer journey at checkout and establish a direct relationship with the merchant’s customer. They also share ownership of customer data and often remarket to the customer after purchase. While the BNPL market has been carved out by D2C providers such as Klarna, Affirm and Afterpay, other players have entered the market through white label solutions.
Banks, in particular, have made great strides in providing merchants with white-label BNPL solutions, giving the merchant full control over the user experience, customer relationship, and data.
The BNPL is not a one-size-fits-all solution, although it has become synonymous with the pay-in-3 (in Europe) or pay-in-4 (in the US) model. There are a wide variety of BNPL financial products available that lenders can offer consumers, including installment loans, lines of credit, and split payments. The type of product offered to consumers depends on a number of factors, including, for example, the size of the ticket. Big-ticket items, such as furniture, might require a longer installment loan, while smaller items, like clothing, would be better suited to a split-pay offer.
Going deeper, there is also a new target market for BNPL and that is the business-to-business (B2B) finance market. Since consumers have different risk profiles and needs than business buyers, merchants should offer specific B2B financing options to their business customers.
Finally, an important element to consider is the distribution of their BNPL solution. This refers to the speed and ease with which the provider is able to deliver the bank’s financial offerings to merchants and consumers. For example, does the vendor offer virtual card technology and e-commerce plugins? Is there a global solution for international merchants?
How does Jifiti’s platform cater to all these different use cases and markets?
We have built our BNPL platform both white label and modular. This means that while our platform is fully customizable, we don’t reinvent the wheel every time we implement a solution for our partners. Banks, lenders and merchants who choose to use our platform can tailor their offerings based on their customers’ needs and business goals.
For example, a bank that wants to quickly scale to many merchants has the option of using our virtual card technology, which requires no integration with the merchant. They can also implement our e-commerce plugins for easy scalability to online merchants. While another bank may prefer simple API integration with each merchant. Our platform can support all types of use cases and customer requirements.
What convinced you that banks would eventually dominate the BNPL space?
From the start, we aligned our BNPL solution with traditional banks and lenders.
It is a deeply rooted strategy that stems from our core values at the corporate level. At Jifiti, we believe in providing access to affordable and responsible financial solutions when and where it matters most.
When it comes to providing responsible financial solutions, banks and other financial institutions are the undisputed leaders. They have been underwriting loans for centuries and have unparalleled decision-making expertise. All they needed was the technology to bring their responsible financial products to where consumers need them most: the point of sale. When it comes to advertisements, banks are able to offer merchants and consumers the most competitive rates or transaction fees. Because they can leverage their strong balance sheets, banks’ BNPL fees for merchants are as low as 1-3% (compared to fintech companies which can typically offer 3-6%) for split-pay products, such as pay-in-3 and pay-in-4.
Regulation is another factor that positions banks as BNPL market leaders as they already operate within a regulated framework. It is inevitable that BNPL will end up being regulated and, unlike their fintech counterparts, banks offering BNPL will already be compliant and have no regulatory barriers to entry.
Ultimately, it comes down to consumer confidence. With the current economic upheaval, there is one thing that is stable: the underwriting capabilities of banks that have been doing so for hundreds of years. Banks have the element of confidence in their favour.
In addition, the same bank can often offer a greater variety of solutions and types of loans.
With many BNPL fintechs experiencing layoffs and market downturns, where do you think they will go in the near future?
I think many BNPL providers have entered the market with a larger goal in mind: to become fully-fledged digital banks. Take Klarna for example. They have essentially used BNPL as a segway to become a digital bank and have already leveraged their brand to launch consumer bank accounts in Europe.
BNPL serves many fintech companies as a powerful and rapidly scalable customer acquisition tool. Then, once a fintech company has developed relationships with its customers and earned their trust, it can then sell other financial services to those customers.
With the recent market turmoil, I predict that major fintech players will not disappear from the map. They will simply seek to diversify and deepen existing customer relationships with other financial products.
Smaller players, on the other hand, are unlikely to survive the economic and regulatory crisis. With higher barriers to entry, the vendor landscape will tighten with a limited number of new fintech players.
Jifiti positions itself as a white label BNPL platform – what are the key benefits for banks going the white label route?
White labeling means the solution is in-brand with the bank and merchant, while the BNPL provider stays behind the scenes. This helps the bank and merchant build their own brands and retain full ownership of the customer relationship, without ceding any part of the user experience to a third-party fintech. The result is a powerful consumer acquisition tool that drives brand loyalty and deepens customer relationships.
But more than that, BNPL is a source of rich customer data. Brands that use a white label platform gain valuable insights into their customers’ preferences and behavior.
What do you think the future holds for BNPL?
I think the BNPL has proven that it is not just another form of payment. Demand from consumers (and therefore merchants) is increasing (despite the current economic downturn) and the fact that Apple has announced the future launch of its own BNPL offering only cements the fact that this shift in consumer finance is here to last.
Banks need to make their funding available exactly when and where customers need it most. To do this, they must quickly close the technology gap. We have already seen more and more banks entering the market with a technology partner. By partnership, I don’t mean a simple plug-and-play integration. I firmly believe that deep partnerships between financial institutions and technology companies are the future of BNPL. Value-based partnerships that leverage each partner’s core competencies.
What was ultimately the Achilles heel of failing fintech players was the fact that they were trying to do it all – both lending and underwriting, as well as technology.
To truly succeed at BNPL, it is essential to separate the delivery technology from the loan itself. When each entity sticks to its core competencies – banks at balance sheet lending and technology companies at delivery technology – the result is an affordable, accessible and responsible BNPL offering.
About Yaakov Martin
Yaacov Martin is the CEO and co-founder of Jifiti, a fintech company he co-founded in 2011. He is a BNPL thought leader, seasoned speaker and active contributor to leading publications on payments, fintech , business and retail, such as The Paypers, American Banker, Business Insider, Forbes, Financial IT and many more. An advocate for responsible and accessible financing, Yaacov has shared his insights on stage at top industry conferences, including on the Money 20/20 Keynote Stage and as a BNPL panelist at Fintech Nexus USA 2022.
Founded in 2011, Jifiti is a leading fintech company providing white label BNPL solutions in any global market. Through its modular platform, Jifiti enables banks, lenders and merchants to deploy any consumer finance program at any point of sale – online, in-store and through a call center. Jifiti works with leading financial institutions including Mastercard, Citizens Bank, CaixaBank, Credit Agricole and retailers such as IKEA, Walmart and others around the world.