The concept of ‘lending’ is an everyday part of life. Whether it be the bartering of times past, or mortgage options of today, there has always been some form of lending available to people.
With the introduction of digital lending, we’ve seen these services evolve both in how they are delivered and how end users can access them. By nature, digital lenders aren’t banks and don’t have bricks and mortar outlets. Instead, everything is done via a website or app, making it incredibly quick and easy to set-up an account and start to use their services.
What is BNPL?
Buy Now Pay Later (BNPL) is the newest service that is set to revolutionise financial lending – shifting the historic norm of scheduled repayments reserved for high value loans, to new lower value items with a shorter payback schedule.
The current BNPL offerings fall into six business models:
- Integrated Shopping Apps — by far the most popular model for retail and everyday shopping that allows consumers a no-hassle ‘single sign on’ to shop at multiple e-commerce sites using their chosen BNPL service
- Card-Linked Installments which automatically sync with a consumer’s credit card at the point of sale
- Off-Card Financing incorporating a fixed term and then subsidised APR rate without the need for a credit card to be used
- Virtual rent-to-own for predominantly high value items that can be reclaimed if payments are missed – the item only becomes ‘owned’ by the consumer once the final payment has been made
- High Value Verticals spanning payments across industries outside of retail, such as sporting tickets and even healthcare
- SME Financing to help small businesses that may be low on capital funds to defer and stagger payments
Primarily retail in nature, BNPL is a great way for consumers to manage their cash flow when buying items. For instance, purchasing the newest mobile phone for £1,000 can now be converted into ten instalments of £100 at the point of e-sale. In this scenario, everyone in the chain is a winner, as merchants get more sales, banks get to charge the merchants a slightly higher rate, and consumers are able to spread payments over time.
From high street retail to high-end luxury goods
The popularity of BNPL can be seen in how the offering has diversified in a relatively short time-frame from high street retail to high-end luxury goods and now to niche markets like event tickets: all offering the option to convert payment into instalments.
It’s easy to see why so many millions of consumers are clicking the BNPL option at the point of purchase, and data company, Equifax, estimates 15 million adults in the UK alone are regularly using it. BNPL makes life easier for people who want to buy but are disciplined with payments. It is a great tool to help with money management; even if you have the money in your bank, with no interest repayment, you can distribute your expenses in the way that suits you best.
Why BNPL matters
BNPL is about convenience – with the literal click of a button, consumers can opt-in to the deferred payment scheme. Digital lenders are becoming increasingly creative with their APIs to entice new customers. For some, an active debit or credit card is all that is needed to become a customer because prior credit checks would have already been carried out by the card issuer.
It is no coincidence that BNPL has soared since the start of the global pandemic in early 2020 – which saw many people affected by furlough schemes and redundancies. For individuals and households adapting to reduced incomes, BNPL services have allowed them to continue to make purchases they may not have been able to afford to cover in one lump sum.
To date, BNPL has been the domain of digital lenders who have it as a sole offering, with traditional banks absent from this booming scene. Whilst banks cannot specialise in BNPL, it can still provide them a great opportunity to diversify.
While banks are certainly no strangers to card issuing and credit checks, by adding BNPL to their portfolio, banks are adding more value, increasing share of wallet and – crucially – keeping customers who may be tempted to move to a digital competitor.
Pismo is here to help
The Pismo platform runs on next generation cloud-native technology and is designed for digital scalability.
Pismo can support all BNPL business models, so you can choose the one that best suits your needs. Our modular platform for banking and payments is fully cloud-based and enables fast innovation. Whether it’s calculating multiple types of interest rate, incorporating different payment structures or interacting with existing credit cards and digital wallets, the Pismo platform will define, implement and support the specifications.
We are experts in the card issuing and digital payments space, already working with some of the biggest banks in Latin America. If you are an existing BNPL player, or exploring how you can add an offering to your portfolio of services, get in touch to find out how we can support you.