Square’s $29 billion acquisition of Afterpay has made waves in the already exploding Buy Now Pay Later space. The good news is that this very expensive purchase of a BNPL fintech by Square is actually good news for banks.
The reason is simple – not only does an acquisition of this magnitude cement the significance of the BNPL industry and increase its demand, but it also marks the (earlier than expected) beginning of massive industry consolidation, with more marriages expected to follow in the BNPL industry.
The question remains – who will pair up next in this burgeoning industry? Business Insider recently identified 8 BNPL companies that are the movers and shakers of BNPL and potential partnership targets. It may be difficult to predict which fintech will be next, but one thing is certain – that BNPL will go full circle. Back to banks, back to its financial roots.
BNPL will go full circle
While Square’s acquisition of Afterpay is fintech-to-fintech, the logical future of BNPL consolidation is bank-to-fintech. The reason for this is that BNPL is essentially a financial product and banks happen to be the kings of financing.
What will bring BNPL full circle is industry consolidation and we’ll see traditional financial institutions, which have the assets, legacy and experience, partnering with and acquiring fintechs, which have the technological acumen and agility. Banks and financial institutions that leverage their assets through partnerships with enablers are positioned for success.
BNPL will go full circle back to its roots, to those with centuries-old financial services experience. The merge of the “old” with the “new” is what is bound to bring the most successful outcome.
Serving vision and purpose is the key to success
Even though banks’ operations and distribution channels may have adapted to meet technological shifts and industry demands, their purpose and vision remains the same – to provide their customers with financial products. To adapt to today’s new way of consumer financing, BNPL or point-of-sale financing, banks will look to acquire and partner with fintech companies that provide BNPL technology and services, enabling them to focus on their vision and purpose, their reason for being.
From the fintech’s perspective, it’s beneficial to pair up with a legacy bank that has the financial acumen, broad customer base and deep knowledge. The fact that banks, transformed or otherwise, are here to stay, is another point in their favor. While tech companies may pivot or try to become banks, banks will always remain true to themselves.
Loyalty to one’s vision and purpose is the key to success.
BNPL is not a trend, it’s a seismic shift
With an estimated 60% of consumers to use BNPL services for their purchases over the next 6-12 months, and the industry estimated to reach $1 trillion in annual gross transaction volume by 2025, it’s clear that BNPL is not merely a passing trend. It’s an industry shift that’s here to stay and only the strongest players with the best business models and solutions will succeed. Square and Afterpay have proven that. Banks that haven’t yet sat up and taken notice of BNPL, need to – right now.
3 BNPL Business Models
There are essentially three main BNPL business models:
- Consumer-Facing Providers: these are direct-to-consumer BNPL fintech companies, such as Klarna, Affirm and Afterpay, that offer customer financing through their application. The consumer can purchase from select merchants through the app or merchants’ point of sale using the fintech company’s own BNPL program.
- White-Label BNPL Enablement Platforms: technological platforms that enable banks and lenders to easily deploy their own loan programs at any point of sale through a single integration, such as Jifiti, Amount and Divido. The platform is white-labeled, which means that the BNPL solution will be in the lender’s and merchant’s own brand. These platforms are fully integrated, giving the consumer a seamless journey from checkout to funding.
- Vertical-Focused Providers: these are BNPL solutions that focus on specific verticals or sectors, such as travel, auto and healthcare. PrimaHealthCredit and Walnut are examples of vertical-focused providers.
The way forward
A partnership is most successful when each party focuses on its core competencies. This is one of the reasons why a bank-fintech consolidation, whether by acquisition or partnership, is the next logical step in the industry’s consolidation.
Banks, with their low cost of capital and refined loan approval processes, are well-positioned to become the BNPL market leaders.
White-label financing enablement platforms empower banks to focus on their core strength, financing, while they provide the technology necessary to bring competitive consumer loan programs to the point of sale.
Disclaimer: The information in this article is for informational purposes only, and should not be construed or relied upon as legal advice on any subject matter. The author is not responsible for any consequences whatsoever arising from the use of such information.
