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Relevance of BNPL in Next-Gen Banking

Buy Now Pay Later (BNPL) has become the buzzword revolutionizing the payments & lending ecosystem. The growth has been exponential across the world and traditional banks who were watching from the sidelines are now aggressively looking at riding the wave - why is it so relevant?

Let us understand what is BNPL- it provides shoppers the option to split the total payment into multiple periods (interest-free) instead of paying everything upfront and also ease the checkout process for online and POS-based transactions. Consumers can choose to pay back at intervals (weekly/monthly/fortnightly) depending on the service provider.

Though this may seem similar to traditional installment-based lending, the elixir lies in allowing buyers to have full ownership of the purchased item and pay 0% interest rate. This is an incredible change enabled in the ecosystem which is ensuring superlative & frictionless consumer experience, higher average order value, more conversions, and improved checkout experience

Traditional banks have realized that getting into this play is critical to stay relevant and, in the process, see a huge opportunity at hand.

  • The number of unique BNPL users in India has soared to 10 million between FY18 and FY21, inching up to nearly one-third of unique credit card users who stood at 35 million during this period.

  • Though spending through new-age cards and BNPL is still less than 5% of credit cards, it is expected to rise sharply to $45-50 billion by FY26

RBI’s proposal that balance sheet lending should be allowed only to banks and NBFCs would trigger a wave of new BNPL products introduced by banks or banks partnering/acquiring BNPL players. Several banks have started approaching new-age BNPL fintech firms to expand their credit base.

Banks are realizing that they risk losing out a significant wallet share especially of the new to credit (NtC) population and millennials considering the high abandonment rates seen in Ecommerce and providing payment options can boost conversion.

Banks have richer data-driven consumer insight, tailored offerings, deep pockets and brand recognition which can propel them ahead of FinTech rivals. The combination of offering the virtual card and the BNPL option can help banks drive revenue and increase customer stickiness.

In summary, BNPL is an opportunity for banks to build on top of the legacy they have created, lure NtC customers and millennials, expand their wallet share in the ecosystem and stay relevant in the days to come. A clear win-win proposition for all stakeholders:

  • Merchants see larger conversion and average basket value

  • Banks provide enhanced consumer experience and build stronger relationship with the consumers by providing options they like

  • Customers relish frictionless payments experience along with the ability to buy more for less.

Love it or hate it, banks can’t do without it!

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