What do BNPL customers want? - FATP (03/03)
What do BNPL customers want?
The BNPL space is quite nascent relatively speaking, so there are still a lot of unknowns and like most categories, the space will probably bifurcate along different lines based on consumer needs.
One interesting piece of news that caught my eye recently was research from Splitit showing that consumers prefer a BNPL solution with existing credit cards. You can find the full press release here which also mentions a lot of other interesting data points from the survey which doesn’t itself appear to be public. For context, Splitit is a BNPL solution that works with your existing credit cards but enables the balance to be paid off over a longer period of time using recurring temporary holds on cards.
I am naturally wary of research commissioned by a company that corroborates their value proposition, especially given the anecdotal evidence suggests that initiatives like Amex’s “Plan It”, a post-purchase BNPL solution has not seen as much adoption. The survey was limited in scope and only surveyed credit card holders so not fully representative but stood out anyway. It wouldn’t surprise me if this view was more broadly held, even if not consensus, as who wants another financial relationship to manage and an app to check?
So what does the survey results tell us? Does it mean that consumers just want a longer time period to pay back their cards? If yes, this would mean that a credit card company could offer a longer interest free period, of say 60 days instead of the traditional 30 days, and put a significant dent in the BNPL space? I would think that credit card companies have already thought of that and it is hardly surprising that consumers want longer periods to pay back any debt. I wonder if any issuers will extend the interest free period on their card beyond 30 days. I posed this question to Twitter and the US responses were largely no due to the CARD act.
I think the key is more flexibility. Traditional financial services are largely one size fits all, we all broadly get the same type of bank account and same type of credit card. There is no personalisation and not many opportunities for something different that better fits with each consumer. BNPL is changing this by providing more options and more flexibility for repayment terms.
There are also likely many other reasons as to why consumers prefer a BNPL solution within their existing cards. Credit card rewards are definitely one, although unlike in the US, in Europe these are relatively low due to low interchange. The survey above found that 83% of respondents, which was US based, said credit card rewards are important and nearly 50% said it was the primary reason for using their credit cards. This is what makes me think that, in the US specifically, credit card companies will still have a lot to say in the BNPL space but demonstrates one way for traditional BNPL companies to win over consumers, offer rewards and loyalty. This is something that Affirm and Klarna are already starting to do but have a way to catch up. Will BNPL companies, whose take rate far exceeds that of card issuers, make cashback or rewards even more lucrative for cardholders than American Express and Chase et al have already?
Changing consumer behaviour is difficult and if incumbent card companies start to offer more flexible repayment options, it will eat into the market of traditional BNPL companies with these types of consumers. Where card issuers need to pay more attention is on attracting younger consumers who may not be eligible for a credit card or don’t want one because they like the simple checkout and shopping experience provided by BNPL companies and their transparency. This doesn’t naturally fall into the skillset of credit card issuers but it is an area they need to gain expertise, likely through partnerships, so they are not left behind. This is probably why they have been slower to respond but the potential is there as they already have wide consumer adoption and relationships to leverage. They need help on the merchant side of the equation so it will be interesting to see who they choose to partner with. The expansive reach of card networks would be a good place to start and Visa Installments and Mastercard Installments will get the ball rolling. Hopefully it finds more adoption than their joint “Click to Pay” checkout button.
The BNPL space is moving so quickly and we have yet to really see a big, differentiated move by an incumbent card issuer but if it happens, it could have a massive impact on the space. I am yet to fully form my thesis on how the space turns out but watch this space.
Fintech News Highlights
🇪🇺 N26 is partnering with exchange Bitpanda for the launch of its crypto project. Bitpanda has also acquired custody provider Trustology.
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🇬🇧 TSB has integrated with Onfido to reduce its onboarding time to 10 minutes.
🇬🇧 Lloyds is to spend £1bn over three years on a digital strategy designed to move 20% of apps to the cloud by 2024 and increase digitally active customers by 10% to 24m+.
🌍 Plaid and Marqeta have partnered to allow the latter’s customers to authenticate users bank accounts and more easily initiative ACH transactions.
🌍 Mastercard has attracted 16 technology companies, including Adyen, Checkout, PayPal, Stripe and TabaPay, to its Mastercard Send program which will is a multi-rail payment proposition for people and businesses. It is also expanding its consulting services to include open banking, open data, crypto, digital currency and ESG
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