How banks can unlock new revenue and enhance customer loyalty with BNPL

BNPL products are a payments phenomenon, with Grandview Research[1] valuing the global market at €3.6 billion in January 2021, rising to €17.9 billion by 2028 for year-on year growth of more than 22% over the next seven years.

How banks can unlock new revenue and enhance customer loyalty

However, much of that growth to date has come from non-bank actors, whether specialists such as Klarna and AfterPay or retailers.

And while most growth to date has come from Millennials, research we publish in our white paper proves that Europeans of all age groups are coming to appreciate the flexibility and ease of use Buy-Now-Pay-Later offers.

In our new white paper, we argue Europe’s banks should be looking to offer their customers Buy-Now-Pay-Later (BNPL) as a payment option. Doing so will unlock and grow new sources of revenue and enhance customer loyalty in an increasingly competitive digital environment.

With new, digital-first banks such as Revolut and Curve now offering BNPL – and Klarna and AfterPay acquiring banking licenses – it’s clear that Europe’s established retail banks should also be looking to offer BNPL from a purely competitive point of view.

However, BNPL is much more than a “me-too” for banks: armed with their existing customer relationships and knowledge of customers’ credit histories, they have an amazing opportunity to unlock and grow new revenue streams while enhancing customer loyalty.

“Buy-Now-Pay-Later is much more than a “me too” for banks –  thanks to their customer relationships and credit scoring capabilities, it represents a huge opportunity for them.”

Why banks hold the aces…

As we argue in the white paper, the Buy-Now-Pay-Later segment is set to face significant regulatory headwinds in the next 18-24 months, with regulators calling for BNPL products to be subject to similar lending criteria as other credit products such as loans and credit cards.

At present, many BNPL players either make a so-called “soft call” on an applicant’s credit record or rely on self-certification for smaller purchases. By contrast, banks typically have strong relationships with their customers that extend across a range of products, enabling them to make rapid, accurate and data-rich decisions on a customer’s creditworthiness.

“The trust banks enjoy with their customers plus their in-depth knowledge of spending habits and credit histories opens up the potential for new, creative products in BNPL.”

Away from regulation, this opens up the possibility of pricing BNPL products to consumers at differential rates based on their credit score.

More than this, banks’ in-depth knowledge of their customers’ spending habits also allows them to get creative with BNPL products.

For instance, banks could offer trusted customers the option to spread recurring payments using BNPL in a “Buy Tomorrow, Pay Later” function. Another idea would be to lower overall credit costs for consumers by splitting existing credit card debt between a credit line and a BNPL product, or vice-versa.

The bottom line is that the trust banks enjoy, coupled with their existing knowledge of customers’ credit profiles and spending habits, opens up new possibilities for them when it comes to product development and customer service in BNPL.

These factors are also a significant differentiator for banks at a time when competition for share of customers’ wallets is heating up, with digital banks and BNPL specialists both presenting a challenge to banks’ traditional dominance in the payments space.

To discuss how your bank can offer BNPL products to your customers, get in touch with Nets

[1] See Grandview Research, BNPL Market Overview and Projections: https://www.grandviewresearch.com/industry-analysis/buy-now-pay-later-market-report

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