Banks will need to act soon to stay in the game or risk losing revenue to newer players in the embedded finance ecosystem.
The option to buy now, pay later (BNPL) has become more popular over the past few years, fuelled by changing consumer behaviours, new use cases, and a much-improved customer experience – according to a Kearney Research paper.
However, specialized providers—not banks—are often the ones getting the largest slice of the BNPL pie, especially for e-commerce.
In this article, we put a spotlight on what banks can do to compete in this space.
BNPL adoption is strong
More than half of European consumers have already tried BNPL. On average, 57 percent of respondents across countries have used BNPL, according to the European Retail Banking Radar 2023 (see figure below).
Sweden and Italy are leading, with two out of three consumers having experience with payment deferrals or dividing payments into instalments.
On the other side of the spectrum are countries such as Austria, the Czech Republic, and Portugal, where somewhat less than half of the population has used this method.
Most consumers who use BNPL say they mainly use it for online purchases. Well above 80% of European consumers who have used BNPL at least once report having deferred or divided a payment for an online purchase.
The use of embedded finance products for online purchases is highest in Austria, the Netherlands, and Sweden, where 95% of BNPL users taking advantage of the option when shopping online.
About two-thirds of respondents who have used BNPL as a payment option say they have used it in physical stores (65%) and as a post-purchase conversion option (66%).
Using BNPL in physical stores is most common in Romania (79%) and Spain (78%) and least prevalent in the Netherlands and Sweden (45%).
BNPL purchases are frequent but small
About 80% of embedded finance users defer or divide payments for purchases with a value of up to €250.
In the Czech Republic, 43% of all BNPL purchases are worth than less than €50—a trend that is also seen in other Central and Eastern Europe countries, such as Poland (36%) and Romania (32%).
The countries where BNPL is used to finance larger purchases are France, Italy, and Switzerland, where 14%, 12%, and 11% of all BNPL purchases respectively are valued at more than €500 and an additional 23%, 17%, and 17% are valued between €250 and €500.
Still, in most European countries—Austria, Germany, the Netherlands, Sweden, and the UK, two-thirds of the purchases financed with BNPL are worth €50 to €250.
The size of most BNPL purchases explains their frequency. Almost three-fourths of BNPL users (73%) take advantage of the payment deferral option up to five times a year, while the remaining fourth (27%) use it six times or more.
The frequency of use is highest in Switzerland and Sweden, with 41% and 36% of respondents using BNPL six or more times a year, and it is lowest in Portugal and Spain.
Non-traditional providers are dominating the BNPL space
Only one in four BNPL offers comes from a bank. Although banks provide the possibility to pay credit card bills in instalments, they have been slower moving into the BNPL space.
In Germany, more than half (54%) of the BNPL offers are linked to a bank and a bank card.
In Spain and France, financial institutions hold more than a third of the BNPL market, with 36% of all BNPL purchases financed through a bank.
But non-traditional providers dominate Sweden and the Netherlands with 85% and 79% of respondents indicating they use BNPL offers from such institutions when opting for a payment deferral.
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