Banks use data and trust to prepare BNPL entry
They waited – and they watched.
Ava Kellyproduct manager at i2ctold PYMNTS that banks, having watched digital newcomers, are now fully ready to embrace buy-it-now-pay-later (BNPL) initiatives while playing to their competitive strengths.
BNPL’s potential market, she said, exceeds $5 trillion.
“For banks, this is an opportunity to stay on top of their customers’ wallets, and they already have the customer base in place,” Kelly said. “They need to fend off neobanks making inroads into the BNPL space.”
The way has been at least partially paved by banks’ digital-only competitors. FinTechs, she said, have provided a “proof of concept” that BNPL is something customers want – and for banks, it’s then just a matter of getting up to speed and entering this new market.
“BNPL can be used at different stages of a purchase, across different customer profiles and products – and across e-commerce,” she said.
If they do well, Kelly said, “banks have the opportunity to create additional revenue streams — and they can do that with new customers, especially younger generations.” With the debit and credit populations already firmly in hand, she said, there is a chance to target and win business from the more entry-level potential customers.
She added that BNPL could eventually be the product that comes as an introduction into the formal banking relationship. This can pave the way for the use of secured cards, and possibly traditional credit cards, while strengthening customers’ credit scores.
PYMNTS’ own data shows interest in and use of BNPL intersects with demographics, with 50 million people having used the payment option in the last 12 months.
Having relatively deeper pockets can be a boon, she said, because banks are well capitalized and can provide larger installment loans, perhaps over a longer period, than FinTechs.
Kelly added that to develop an optimal BNPL strategy, banks should consider investing more of their resources in analytics to refine their go-to-market activities and educate their members. With data and analytics in hand, banks can engage with consumers at the pre-purchase stage – and get them thinking about BNPL before the point of sale through the issuance of virtual cards.
Beyond individual consumers
Beyond the individual consumer, Kelly said, “There are also many ways for small businesses to find BNPL useful. Installment loans can help small businesses manage cash flow when buying inventory or making emergency repairs to existing equipment.
Whether interacting with individual or corporate customers, banks can take advantage of – and build on – the trust factor that permeates interactions with end customers.
“Banks can talk about trust, convenience – where they can integrate BNPL into existing card products,” she said, “and having ‘regular’ customer support channels can also be important for customers. “
The demand is there and the technology barriers have been removed, all banks need to do is find the right technology solution, Kelly said. She added that as 2020 approaches, bank participation in BNPL is set to accelerate.
“They waded into the pool and now you’re going to start seeing them swimming,” Kelly predicted.