The economic landscape of 2020 pushed consumers to widen their search for purchase financing options. Buy now, pay later, is an increasingly popular choice.
According to PYMNTS, “87% of consumers ages 22 to 44 are interested in monthly installment plans,” and buy now, pay later (BNPL) lending may soon challenge credit cards as a payment method of choice.
For credit-card-issuing banks, that’s a problem with a ready solution. Though fintechs currently dominate the BNPL market, they rely heavily on data that banks already have. To enter the space, banks simply need to know how to leverage this data, learn from successful fintechs, and get to know the BNPL audience a little better.
While credit card providers may be tempted to write BNPL off as a lending model for risky consumers with bad credit, they’d be wise to look closer. These consumers generally can afford the products they take loans for; they simply prefer paying in installments for budgeting reasons or to avoid credit score dings.
Just look at the numbers. Eighty percent of BNPL users in a Cornerstone survey said they always pay their bills in full and on-time and make their loan payments most or all of the time. According to the research, most BNPL customers earn more than $75,000 a year, hold credit cards, and are Millennials. These consumers famously distrust credit cards, are budget conscious, and avoid paying interest when possible.
While this isn’t the case for every BNPL customer, it’s true for enough of them that banks should take note. After all, fintechs certainly have.
Using income and payment data from users’ bank accounts (most BNPL customers link these products to debit cards), successful companies like Klarna, Afterpay, PayPal, and Affirm demonstrate that these new methods of determining credit worthiness work.
This gives banks an obvious path into a market that saw 50 million BNPL purchases in the last 2 years, and a $24 billion industry that is rapidly growing. Banks already have the customer data, the technology, and the ability to offer competitive pricing on these products. The trick is to move quickly to build enough merchant partnerships to compete.
In order to compete with established fintechs who have already snagged space on check-out pages with thousands of merchants, card issuers entering the BNPL market have to think strategically. Consumers shop with their favorite merchants in mind, not their payment method, and not every purchase is a good fit for BNPL; no one is financing their morning coffee. Audience and purchase types, as well as point of entry, matter.
Current BNPL products reflect these insights. Affirm is partnered with merchants like Neiman Marcus, David’s Bridal, and Callaway Golf. My Chase Plan—a BNPL product by Chase Bank—only offers financing for purchases over $100 after a transaction has occurred.
Banks also need to consider their best point of entry in the sales funnel. Sixty percent of millennial consumers say that seeing a pay-over-time offer message early in the shopping experience gives them confidence that they can buy.
Competing for this space is tough, and requires investing heavily in a merchant partnership team. But card-issuing banks have unique advantages to exploit. For example, they know when a customer has made a large purchase. Banks can leverage this information to trigger an automated BNPL offer.
Partners like Kunai make this possible. A text message would inform the customer that they have an option to pay for their recent purchase in installments. A link could direct them to an in-app interface where they can review, accept, and manage the offer.
Banks are uniquely positioned to leverage customer data, enter the BNPL market, and compete with fintechs for space with merchants. Particularly for banks with large Millennial and Gen Z audiences, failing to take advantage of this ability equates to handing lending revenue over to disruptive fintechs without a fight.
Banks can create intelligent, competitive BNPL products that meet customer needs and strengthen relationships and loyalty. Fintechs have taught us that consumers respond well to personalized digital offerings that use their private data to improve their experience with financial services. Banks can do this, too, with the added advantages of deeper roots in the financial industry and a well-earned reputation for security in an age of skyrocketing fraud.
For banks fighting back against fintech disruption, now is the time to partner with teams like Kunai. Together, you’ll create competitive solutions that meet today’s demand for straightforward lending based on innovative risk assessment and preference for flat fees instead of interest.
Sandeep: Tell me a bit about the early part of your career.
Tom: I spent a decade helping to build start-ups focused on application and database software. This was where I learned how to sell and do business development. I was fortunate to be part of one company going public and another being sold to IBM.
Sandeep: What is something you learned during this time that helped you with consulting?
Tom: I began to appreciate how different customers achieved varying levels of success with the same foundational technology. This made me understand just how critical getting your team and process right can be.
Sandeep: This is something I only came to appreciate years into consulting, especially after the sale of my first consultancy to Capital One.I saw teams in different parts of the company trying to solve challenges like real-time messaging. Same corporate culture, same technology, same internal support mechanisms. Night and day outcomes.
Tom: We saw a lot of the same thing after selling our practice to EMC (sold to Dell in 2015). This is probably the thing I'm most proud of when it comes to the teams I've helped to build: the ability to perform well in a variety of contexts, sometimes in ways that inspires the client team to up their game as well.
Sandeep: Yes. It's particularly cool to see your team succeed in individual ways after an acquisition...consulting skills definitely translate into the corporate environment.
Tom: Totally. We have people who've stayed on at Dell and risen up the ranks, while others took the opportunity to become successful executives at other Fortune 100 companies....or to start their own agencies and startups.
Sandeep: We've both been around a while. My first consulting project was a Y2K thing for Cisco back in 1998. You've been around a little longer than that :). How do you think consulting has changed most during the past five years?
Tom: I think because there is so much infrastructure available now, consulting has become more delivery and outcome-oriented. A better blend of strategic and tactical. Public Cloud has also enabled velocity to increase at a pace unfathomable 5 years ago.
Sandeep: What has stayed the same?
Tom: It's still mostly about people. People who thrive on change and are focused on their personal and professional development. I love that this has not and will not change...it's what I love about consulting.
Sandeep: I know you're adjusting your work style to COVID. You're still a dude who clearly prefers to drive an hour for a socially-distanced hike or outdoor meeting over Zoom any day of the week :) But personal styles aside, what is specifically compelling about a remote agency during the era of COVID?
Tom: Kunai has been remote for years, which gives them an inherent advantage. There is something about the communication and management styles that just works in a way that other organizations are still figuring out.
Sandeep: Yeah, I think what a lot of people fail to realize is that remote work isn't just office work over Zoom. it's an entirely new paradigm. There needs to be an understanding for asynchronous efficiency...and this just takes time and effort to develop. How do you approach remote work and family? What are you learning about separating work and personal time?
Tom: No matter what the form of interaction, Focus. Be present. Quality over quantity. The best weeks are the weeks where I proactively schedule work and personal time. Neil (Kunai's Head of Delivery) shared a great quote with me "With discipline comes freedom." When I am proactively addressing the majority of my professional and personal commitments, I find I earn a little flexibility. A little freedom.
Sandeep: Tell us about a business hero of yours that I may not have heard of before.
Tom: Paul O'Neill is someone you may not know. His work in both the public and the private sector created a profound impact
Sandeep: We are both over forty years old :). How have you learned how to work smarter during the past decade or so? What do you wish you knew about consulting when you were 25 that you know now?
Tom: Consultants want to make lasting change. Lasting change is often not the act of a single person. Today I work much harder bringing others along on the journey.
Sandeep: Last question. What are you doing here? :) Why join a small consulting company this late in your career when you could have a cushy job somewhere else?
Tom: I love a good challenge personally and professionally. When I turned 40, I decided I would run a 10K every Thanksgiving weekend and try to have my finishing time be less than my age. With the exception of one year where I did not run due to a health issue, I have met the goal. I also recently completed the Leadville 100 Mountain Bike race. So, I guess I'm here because I'm a glutton for punishment :) Jokes aside, our customers have a job to do and I intend to put Kunai in a position to execute flawlessly on their behalf. I love committing jointly to audacious goals for our customers and our business.
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