Digital banking
While ‘buy now, pay later’ is most popular with younger consumers, it also appeals to many older ones as well Percentage of online shoppers who are credit card or BNPL users
Percentage of respondents who are credit card users Percentage of respondents who are BNPL users
Age
65–74 55–64 45–54 35–44 25–34 18–24
76% 73%
62% 63%
51% 31% 100% 50% 0% 10% 16% 25% 46% 49% 42% 60% 100%
Solís adds that the value proposition of banks combines three elements: the digital side, financing and loyalty. All these are supported by businesses. As he puts it: “The bank’s relationship with the client implies knowing their trajectory, having the management of their finances and a fluent interaction with them so we can provide them with a better service based on that knowledge.
“Although at specific points the client may want to operate with other entities,” Solís adds, “they’d rather perform most of their transactions with us. Therefore, we must be able to offer the best solutions, and we’re doing so. BBVA’s Aqua Card, for example, outperforms any fintech solution in terms of user experience [digital first] and security.”
At Barclays, meanwhile, Stephen argues that while customers are becoming increasingly savvy (and less loyal) with their finances, banks and credit providers still need to act responsibly. “They should be focusing on long-term customer outcomes rather than short- term profit, by making responsible lending decisions to ensure customers are only borrowing what they can afford to repay.”
35% Barclays 16
A fair point. After all, the bank’s own research shows a lack of regulation around BNPL products, something that can potentially lead to irresponsible lending whereby people take out BNPL contracts – despite having previously been rejected by regulated alternatives. According to that study, 35% of BNPL users admitted choosing the service because they had insufficient funds to pay for their purchase. Even more tellingly, 10% said they picked a BNPL because their applications for a credit card had been rejected.
Users admitted choosing BNPL because they had insufficient funds to pay for their purchase.
Smooth sailing?
Despite the threat of tighter regulation and increased competition, Solís argues that flexible payment solutions like BNPL are here to stay. “There is a requirement now for banks to take stock, consider their options and develop robust plans to respond to customer demand,” he says. “Some banks will succeed in developing simpler,
more dynamic and easier models, extended to more people.
“There also may be a convergence between the services offered by banks and fintech,” Solís continues. “There is no doubt that the banks will continue to implement the improvements in payments that the customer demands.” Of course, much will also depend on the degree to which those fintechs with banking licences decide to compete in the wider financial services space.
What is clear is that existing models will need to be tweaked, ensuring that card issuers will have to modernise by adopting microservice-based technical architectures, as well as increasing the use of APIs and cloud-based hosting of processing platforms. Yet if APIs and cloud-based hosting can provide the underlying architecture to bolster customer outcomes, the key point to make for BNPL is that it offers a ‘smooth’ payment journey. As Stephen explains, this is partly because BNPL providers are subject to less regulatory oversight around credit and affordability checks. This is set to change, and not before time. After all, and according to research by Barclays Partner Finance, 39% of BNPL users lacked a full understanding of how the products actually work. Even more strikingly, 58% of respondents were apparently unaware that these unregulated loans offered them less protection than regular products. To put it another way, it seems fair to agree with Stephen who argues that regulation is vital – ‘smoothness’ be damned. “Once the new regulations are put in place, it may mean the BNPL customer journeys aren’t as smooth as they have been,” he says. “But we believe it’s a price worth paying if it means protecting consumers from problem debt.” Solís makes a similar point, suggesting that regulation is an inevitable consequence of concerns around the potential targeting of vulnerable consumers, and encouraging them to spend beyond their means. Flores, for his part, takes a broader view, arguing that growing regulatory attention will “balance the game board”, and that the trend is still for instalment payments to spread globally. Flores further notes that in certain countries where BNPL has already gained traction – notably Australia and the UK – regulators have taken steps to address potential issues. In the meantime, instalment financing is clearly growing internationally, even as traditional revolving financing is winding down and customers are beginning to pay more on debit than on credit.
Fintechs, for their part, are looking for new ways to monetise their clients. Indeed, there is growing interest in expanding business models beyond simple payments, with marketplaces built into payment platforms, allowing customers to buy directly from third-party merchants. Whatever the eventual outcome, traditional banks will need to be on their toes as this new industry evolves. ●
Future Banking /
www.nsbanking.com
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