According to Insider Intelligence, the growth of buy-now-pay-later (BNPL) is expected to continue into 2022. The promise of new regulations and the need for consumer protection will drive the emergence of new business models and competitive strategies. The main difference between BNPL and other financial services is that it allows users to split their payments equally. This makes it very easy to replicate across various industries. As a result, many fintech companies are entering the market.
Due to the increasing competition in the BNPL space, banks are seeing a decline in revenue from their credit card and consumer loan products. Having the right strategy and business model is critical to succeeding in this space. Several banks, such as Monzo, Barclays, and Santander, have entered the market. Some of them, such as Monzo, offer flexible payment plans that allow users to pay off their purchases monthly.
As regulations related to the BNPL market start to affect banks, it is expected more banks will enter the market. Having the right mix of in-house and external solutions will allow BNPL providers to compete effectively.
Most of the time, a basic credit assessment is performed by a bank. However, with the implementation of new regulations, this process will change. The UK's Financial Conduct Authority (FCA) has proposed that banks should fully align affordability with their credit risk checks.
Building longevity in the BNPL sector
The good news is that the growth of the BNPL space continued in 2022. The not-so-good news is that many of the players in this space will eventually lose their competitive edge. However, the leaders in the BNPL space will be chosen based on their proactive approach to serving their customers and other stakeholders.
According to Forbes, the total purchases through BNPL amounted to $100 billion last year, which exceeded previous projections by 400%. With more companies entering the market, it is no surprise that the race for positions is intense. With the figures increasing, longevity equals profit.
With a focus on transparency and personalization, BNPL aims to transform the credit world by providing its users with the best possible experience. The bank believes that treating its customers as they would like to be treated should be the guiding principle for its operations.
Successful banks will ensure that their customers receive the best possible deal during the life of their loan. They will also avoid hidden fees and other unpleasant surprises. Net promoter scores will also help identify which bank delivers the best deal.
Standing out from the competition
The goal should not be to remain in the middle of the crowd while trying to capture market share from the other players. In many markets, financing has not changed since the 1980s.
Greenfield opportunities are created when a bank can offer its customers world-class terms and services. The ones that can deliver exceptional customer service will have the longest-lasting success.
Instead of using merchants as a gateway to customers, companies should focus on creating strong relationships with them by developing a comprehensive understanding of their goals and needs. This will allow them to build lasting relationships with their end-users.
Even the most innovative banks will struggle if they do not have a strong culture. This is about developing an inspiring mission that will guide their operations and how they treat their employees.
Although mission-driven culture is often written about elsewhere, core values are crucial to establishing a solid foundation. This allows the team to continuously improve and develop new ideas.
Due to the rise of digital payments and the increasing number of competitors in the BNPL sector, banks and global merchants must carefully consider their strategies and business models to remain competitive.
The key to success is developing an engaging and customer-friendly app that can be easily integrated with other platforms. This will allow the big players to gain a competitive advantage.
For most banks, this will mean replacing their legacy technology with artificial intelligence and machine learning. They will also need to improve their risk management and provide a better customer experience.