In the future of BNPL, everyone is a lender


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Ask a young person the last time they used cash, or even a physical credit card, to make a purchase and you will probably be surprised. Over the past 18 months, digital payments have exploded in the United States, following similar trends already established in Asia, Europe and Latin America. Consumers, especially millennials and millennials, have quickly embraced contactless payments, instant money transfers, and single-use digital credit cards. FinTechs like Stripe, Plaid, and Venmo have enabled a whole new world of digital payments, and one type of digital payment that has particularly grown in popularity is buy-now-pay-later, or BNPL.

Other big fintechs, like Affirm, Klarna, Sezzle and Afterpay, recently acquired by Square, along with many other startups, have made BNPL increasingly common for transactions with consumers. BNPL infrastructure providers allow merchants to offer lines of credit to buyers at the point of sale so that they can purchase products in installments at zero or very low interest. BNPL is convenient for people without a credit card or who want to avoid the high fees charged by credit card companies.

Many Americans first got an idea for BNPL through phone buying plans, where the cost of their new iPhone is spread over 24 months, and the practice is now popular for other high value items such as Peloton bikes, game consoles and furniture. In the past year, one in five Americans has made a BNPL purchase, and by 2025 consumer BNPL transactions could reach $ 680 billion globally, double the levels in 2020. The United States have a lot of catching up to do. In countries like China or Argentina, BNPL is so prevalent that consumers can “pay later” for a Big Mac or a subway ride.

Digital lending technology upgrade

As BNPL continues to expand, along with broader digital lending programs, it offers a host of challenges and opportunities for all lenders, from large fintechs and banks to non-bank lenders and payment processors. and traders. BNPL innovation accelerates the trend “Anyone can be a lender”, but with new lenders and lending programs, additional technology needs are needed to support these digital lending initiatives. Fintechs will need to upgrade their back-end loan management and collection technology to enable larger BNPL volumes. Banks will need to replace old back office systems to make BNPL possible at technical, regulatory and compliance levels. Retailers of all sizes will seek to embrace integrated financing, becoming lenders themselves as they deepen their relationships with customers.

As investors in fintech companies for over 20 years, we see BNPL as yet another example of innovation and disruption at the intersection of digital payments and lending, with billions of dollars worth of opportunities for the savvy fintechs who provide the technology platforms that enable BNPL. Already, some BNPL fintechs are being bought out by banks, such as the recent purchase of GreenSky fintech by Goldman Sachs for $ 2.2 billion.

Fintechs will enable BNPL’s growth

FinTechs are at the forefront of the BNPL ecosystem, fueling both front-end consumer interactions with BNPL and the back-end loans and collections necessary for it to function properly. But most fintechs still have a lot of work to do to make BNPL 100% safe, mundane, compliant, and accessible. Many have yet to upgrade their technology to propel BNPL into the future. The old banking and lending platforms they rely on are giving way to digitally-driven vendors, especially when it comes to mission-critical systems like loan management software.

BNPL’s frontend experience in providing loans is already well established, but the existing technology powering the lending service was not designed for digital lending and needs to catch up. FinTechs like LoanPro (an FTV investment), Klarna and PayPal are already improving the security, speed, transparency and compliance of BNPL’s lending service.

As BNPL grows, there will also unfortunately be an increase in late payments, non-payments and collections which will require a more robust loan service, carried out on a digital scale. Better downstream lending could also allow BNPL’s fintechs to enter new industries, such as healthcare, insurance, rent, and groceries, as well as accept foreign currencies.

Traditional lenders like banks are increasingly competing with fintechs, so they will also need to upgrade their technology to support BNPL, among other types of digital lending initiatives. As fintechs continue to influence key banking markets for accounts, payments and loans, banks can take the lead in BNPL by improving lending service on the backend, allowing their organizations to streamline experiences. borrowers on the frontend.

BNPL is here to stay. Consumers around the world love the seamless point-of-sale experience of buying products in interest-free installments; retailers like BNPL to be a simple and inexpensive way for consumers to pay; fintechs and banks love the way BNPL opens up a whole new world of digital lending. Investing in technology to support BNPL, among other digital lending initiatives, will be a top priority for all types of lenders (fintech, bank, non-banks, retailers, etc.) if they are to be successful in the new digital age. . first loan.


Robert anderson is a partner of FTV Capital where he leads investments in financial services, payments and transaction processing. He has been a growth capital investor at FTV since 2010.


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