Future of the payments industry: Buy Now Pay Later future and the changing role of banks

Paying by waving your watch or mobile near a payment terminal, splitting a bill with a mobile app, paying directly on a website for second-hand items, Buy Now Pay Later, or paying with crypto coins. All these payment methods represent just a selection of recent developments in the payments industry that, for the most part, come from the minds of specialised fintech companies or big-tech players.

For many companies - thanks to digitalisation – it is becoming easier and cheaper to develop their own financial services and implement them into existing services. Could that mean that banks as we have traditionally known them will undergo a drastic change? In this blog, Buy Now Pay Later is specifically highlighted as the next opportunity in open banking and digitalisation.

Increasing popularity of Buy Now Pay Later

One of the trends that has taken off in recent years and whose peak seems to be far from in sight is Buy Now Pay Later (BNPL). This exists in different forms, but at its core, it remains the same everywhere. It allows customers to buy a service or product, receive it and pay it off over a period of time using a number of instalments. It is a concept that has been available to consumers for several decades, but new technology, open banking and an explosion of e-commerce during the COVID-19 pandemic caused it to boom.

Interestingly, the number of credit cards remained the same or even declined in some countries in recent years. Across Europe, the number of credit cards issued increased by one per cent over the past five years¹. Just slightly more than the growth of Europe's population over the same period. At the same time, major BNPL players also experienced substantial growth.

At first glance, BNPL seems to mainly benefit consumers, but in practice, all parties benefit. BNPL allows consumers to purchase services and products at times when they have less to spend or need to make a big purchase. BNPL thus increases their purchasing power. As a business, it is an easy way to attract new customers. Consumers are less likely to abort their purchase during the payment process, and simple procedures and easy purchasing encourages repeat purchases.

The emergence of a popular service such as BNPL does not mean that banks are losing their value. They can play a big role in this era of open banking as providers of banking services to other parties. Despite them having to share revenues with third parties, they can benefit from the new business.

Regulations

If BNPL’s growth sounds like a fairy tale, clouds are gathering on the horizon: EU regulators have announced their intention to treat BNPL more like other credit products such as personal loans and credit cards. This offers regulated financial institutions and established merchants an opportunity to enter the market, as they enjoy the trust of their customers – and have access to their credit records and purchase history. BNPL is an in-demand service that consumers want to use, but the right approach using a viable business model is essential.

Open banking offers financial institutions this opportunity by providing accurate and easy credit checking and payment options such as Payment Initiation Services. Open banking has allowed banks to offer account-to-account payment methods with lower fees, faster reconciliation of funds and an easy user experience that is highly secure. The advent of open banking will double these benefits and allow financial institutions and merchants to offer a wider range of BNPL options at lower costs and risks.

BNPL is just one example of the numerous changes in the financial sector at the moment. Banks that want to participate will have to develop a strategy and choose a specialty to compete with fintech and big tech. Still, this new banking can bring a growth of new applications and services of which the payments industry is a part. Plenty of opportunities, then, for banks and all other players in the field.

Would you like to know how Worldline can support you? Our BNPL aggregation service gives you access to multiple credit partners with a single integration. If you’re nterested, you can download our Worldline Buy Now Pay Later brochure. 

¹ The Digital and Card Payment Yearbooks 2021-2022