Strategies to Survive the BPNL Trend with POS Financing

As buy now, pay later (BPNL) advances, credit card issuers may need to rethink their products, economics, and value propositions to maintain profitable growth.

 Although traditional sales financing, also known as layaway, has been available in the US for many years, credit card issuers face a risk to profitable growth from the BNPL, a relative newcomer to the payments industry, which is growing quickly. A reduced APR, regular payback schedules, and the ease of utilizing a payment option incorporated into shopping applications and online customer journeys are just a few of the reasons consumers choose BNPL. BNPL players face a more difficult macroeconomic environment with rising interest rates and defaults, and concerns have been raised about the risk associated with BNPL. However, it appears that BNPL has altered consumers' perceptions of the borrowing process and increased the role that lenders can play during the shopping process.

The following identifies some of the features of the BNPL that are either currently impacting or are expected to impact issuers' strategies and those of banks, fintech, and other payment service providers. BNPL applications are becoming more prevalent early in the buying process and now provide a wider range of services. At the same time as financial institutions are entering the fray, payment networks are making POS financing widely accessible.

Diversified payment options: Consumers' shopping journeys are starting with BNPL apps. The majority of BNPL service providers are beginning to market themselves as integrated applications that mix shopping and consumer finance. With the help of this tactic, they may increase client loyalty and earn affiliate commissions from unintegrated businesses. This trend is expected to continue as merchant discount rates decrease and rising interest rates drive up the cost of funds, reducing BNPL providers' profit margins and forcing them to turn to affiliate fees as a secondary source of income.

Customer loyalty: To suit the changing requirements of its youthful clients and to increase customer lifetime value, BNPL players are providing new financial and loyalty solutions as they continue to grow their customer base.

These actions may eventually be applied to other goods, such as high-yield savings accounts, loyalty programs, and other services for money or shopping.

Service: Payment networks are introducing solutions that permit increased usage of BNPL by leveraging their access to merchants and control over credit-card transaction processing. Network BNPL solutions may increase consumer, small business, and merchant access to BNPL in industries with low BNPL penetration. Payment networks that wish to improve customer service might also allow customers to select the optimal payment method for every transaction, such as a credit card, on-card BNPL, or virtual-card-enabled BNPL, based on the ticket size, credit-card limit, pricing, and other variables.

Customer experience: POS financing is something that credit card companies and other financial institutions are looking at. Some lenders launch their products, while others use acquisitions to break into the industry. The capacity to underwrite large-ticket installment loans, strong brands, strong balance sheets, and a sizable and devoted customer base provide lenders with a competitive edge in this new market. In the future, lenders may utilize POS financing to attract new clients and improve their wallet share by cross-selling traditional banking services to POS financing customers.

The degree to which these trends will alter POS financing and consumer lending, in general, will depend on many variables, such as how willing consumers are to begin their shopping experience on BNPL shopping apps, how well networks and issuers can create an engaging user experience and promote adoption, and how well lenders can integrate and expand the POS financing businesses they buy. Due to their advantageous economics, private-label credit cards are preferred by retailers; nonetheless, they are likely to have a greater influence on volume than general-purpose cards. Compared to using a private-label credit card, BNPL typically provides customers with experiences that are more seamless, transparent, and occasionally more affordable. By industry and product category, BNPL's effect on credit cards will probably differ. Only about 2 percent of consumer transactions in the travel industry, where cobranded cards provide generous rewards for customer loyalty, are made using BNPL. As purchases continue to move to online channels and private-label card penetration levels remain unchanged, the other hand, BNPL providers may make significant inroads into the markets for furniture, mattresses, electronics, and appliances.