BNPL in a world of cryptocurrency

01 Feb, 2022 . 4 minutes

From a financial perspective, 2021 turned out to be a better year than most people had anticipated amid the prolonged pandemic. Although housing costs alone had risen by 22 percent in the past year, there is optimism for 2022 as the social restrictions are expected to be relaxed further and international travel resumes.

However, the rise of buy now pay later (BNPL) and cryptocurrencies calls for better regulations and supervision and 2022 could be the year some authorities start to enforce stricter measures, which means these services will become even safer for the consumer. While some might fear overregulation, fintech firms believe the framework would bring clarity, consistency, and proper customer protection.

As the shopping experience becomes more sophisticated, BNPL providers might eventually integrate with digital wallets, including cryptocurrency wallets. With this in mind, BNPL customers could soon use their crypto funds for instalment payments or vice versa – using BNPL to fuel their crypto trading activities.

One of the selling points of cryptocurrencies is their potential to eventually replace traditional money. To keep up with the growing demand, even large financial industry players such as Visa and MasterCard are running crypto card programs. Both companies allow wallets and exchanges to issue their own branded cards linked to customers' digital wallets.

Crypto cards actually work like regular debit cards, but your balance is in crypto since they are connected to a cryptocurrency wallet. Each time customers use one of these cards to pay for their purchases, their wallet provider automatically exchanges their coins for fiat money, meaning the merchant gets paid in local currency.

Pairing BNPL with cryptocurrency

BNPL saw its first peak in the middle of the pandemic in 2020. In that year alone, the opt-in rate for instalment payments such as BNPL had increased by 55 percent in Spain and globally changed how people shop. BNPL not only allows consumers to spread payments for their purchases without being charged interest or hidden additional fees, but it also sparks a more aggressive sales conversion for merchants.

Having crypto as an option within the BNPL system would be perfect for the younger generation, mainly those opting against credit card ownership and those who are more comfortable with digital currencies as payment methods.

Each platform that pairs these two high-tech payment methods has its own conditions, but they generally operate in the same manner. Customers can opt for the BNPL method when purchasing from a retailer that offers the option. After the provider approves the BNPL proposal, the customer has to make an initial down payment in crypto – this usually amounts to about 25 percent of the total purchase price.

Meanwhile, the outstanding balance can be repaid interest-free over a set period using cryptocurrencies sent from the customer's crypto wallets.

On the other hand, there is also the possibility of a reversed transaction where customers can buy cryptocurrencies using BNPL. To do so, customers must have a cryptocurrency wallet to store their virtual coins, such as Bitcoin or Ethereum. Afterward, customers can use conventional money to buy cryptocurrencies.

With BNPL in the picture, the amount of conventional money needed can be replaced with several instalments. This could also mean that BNPL providers provide the cryptocurrency trading service overall, allowing customers to use only one platform for all their trading needs.

BNPL providers early starters

Klarna, one of the world's largest BNPL players, decided to start early by teaming up with cryptocurrency broker Safello to provide brokerage access to thousands of banks in the European Union. Using Klarna's open banking infrastructure, customers will be able to buy digital assets directly from Safello through Klarna's payment system.

The system, which has been developed over more than 15 years, is one of Europe's most scalable and proven open banking platforms with access to more than 5,000 banks in 18 countries across the continent.

Another model comes from AtPay (@Pay), which is one of the pioneers that introduced DeFi to the BNPL realm. DeFi stands for decentralized finance, a blockchain-based form of finance that does not rely on central financial intermediaries. Instead of using brokerages, exchanges, or banks to offer traditional financial instruments, DeFi customers are bound by smart contracts on blockchains with cryptocurrency wallets being the first point of contact.

AtPay is merging blockchain and crypto technologies with the BNPL concept to enable consumers of both online and offline stores to access numerous payment methods and, eventually, lower fees. This payment method includes the option to use specific cryptocurrencies when paying from the platform's native wallet.

Australian BNPL provider Zip in July 2021 announced plans to enter the crypto market by offering trading services to users. The plan, set to be launched within the next 12 months, is considered an answer to growing public demand for crypto trading services and digital wallets.

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