How to stand out in the BNPL market: A guide for FIs and PSPs
In the rapidly evolving landscape of financial technology, few payment methods have experienced as meteoric a rise as Buy Now Pay Later (BNPL). Over recent years, BNPL has revolutionised consumer purchasing habits, offering unprecedented flexibility and convenience. According to Fortune Business Insights, the global BNPL market reached an impressive US$30.8 billion by the end of 2023 and is projected to soar to a staggering US$167.38 billion by 2032. With such exponential growth, it's no wonder that banks, payment service providers (PSPs), and other financial institutions (FIs) are eager to carve out their share of this lucrative market.
As the BNPL space becomes increasingly crowded and competition intensifies, the urgency for FIs and PSPs to launch their offerings sooner, rather than later, is rising. However, amidst this urgency, it's essential for FIs and PSPs to keep a cool head to ensure that they tailor their offerings to meet the needs of their customers and select the right BNPL model to support their business. Standing out amid the packed marketplace requires a nuanced understanding of the diverse flavours of BNPL and how they can be tailored to meet the unique needs of both businesses and consumers.
The world of BNPL is not one-size-fits-all; it's a rich tapestry of options, each with its own unique set of features and benefits, and FIs and PSPs must carefully consider which model, or combination of models, is right for them to help grow their business. Take, for example, post-purchase off-card BNPL. This model allows customers to complete transactions with their preferred payment method and then opt to convert eligible transactions into manageable instalments after the fact through their bank. It offers the flexibility consumers crave without imposing restrictions at the point of sale.
Whereas, card-linked BNPL enables consumers to make purchases both in-store and online using a dedicated BNPL payment card issued by their bank or a PSP. This enables a BNPL experience to be seamlessly integrated into a consumer’s shopping experience without the additional complexities or need for FIs and PSPs to manage merchants.
At-purchase off-card BNPL, predominately offered by PSPs, takes a different approach, allowing customers to utilise BNPL directly at a merchant's e-checkout or POS terminals. By seamlessly integrating BNPL into the purchase process, this model reduces friction and enhances conversion rates, benefitting both merchants and consumers alike.
Last, but not least, is merchant-funded BNPL, where merchants themselves finance BNPL purchases at the point of sale. This not only puts merchants in control of their offerings, enabling them to adapt their services with ease, but also fosters loyalty and repeat business, transforming one-time shoppers into lifelong customers.
While there are four distinct models, the beauty of BNPL lies not only in these pre-defined models but also in its customisability. FIs and PSPs have the freedom to offer their own flavour of BNPL by tailoring their offerings to suit their unique needs and target demographics. Whether tweaking repayment plans, expanding distribution channels to include mobile banking or kiosks, or implementing loyalty programs to incentivise usage, the possibilities are virtually endless.
The world of BNPL presents abundant opportunities for FIs and PSPs to differentiate themselves and establish a strong foothold in this rapidly expanding market. By understanding the diverse flavours of BNPL and choosing one model, or multiple models that can help better serve their customer base, FIs can position themselves at the forefront of the BNPL market. With the right partner by their side, FIs and PSPs will be in a prime position to tackle the complexities of the BNPL landscape and unlock the full potential of this emerging payment method.