This is a reprint of an article that originally appeared on PYMNTS.com on April 4, 2022.
Question: After two years of furious innovation, it’s now time to take stock of the payments and commerce innovations — and investments in them — that hit the mark, missed the mark, or need to hit reset. What’s on your list?
With usage more than doubling in 2021 and projected to account for nearly $1T in sales volume by 2026 – I think we can all say Buy Now, Pay Later (BNPL) hit the mark with consumers.
For banks, not so much.
Aside from a bank’s inherent technological barriers to getting to market quickly with a competitive BNPL offering, most of today’s existing BNPL solutions involve integration with a merchant, adding yet even more complex challenges for banks to overcome. Most banks don’t know the intricacies of connecting with a merchant’s systems; integrating into ecommerce and, potentially, in-store; managing orders and returns; or creating a user interface that checks for fraud.
And herein lies the opportunity to hit the reset button on BNPL: Offering banks a means to get into market with a BNPL solution that is not beholden to merchant integration. One way of achieving this is through browser extensions. Much like PayPal has done with their acquisition of browser extension Honey, and which they have coupled with their Pay in 4 offering, we’re starting to see financial institutions partner with fintechs to build out BNPL browser extension capabilities. With browser extensions, there is no merchant integration or technical burden on the bank – it’s simply a matter of the financial institution turning it on.
Another BNPL option that removes the merchant integration pain point for banks is by way of virtual cards that can be issued via a bank’s app and used at millions of merchants that accept the issuing card network. Mastercard’s newly expanded Mastercard Installments BNPL program is a notable example. We’ve already seen a rise in BNPL providers including virtual cards into their offerings, which customers like because their digital nature makes them simple to set up, easy to store and impossible to lose. Plus, they allow for a seamless transition between in-store and online payment experiences, most often a matter of scanning a QR code in-store and completing the transaction on a mobile device.
Without question, the events of the past two years have created a space for BNPL to thrive. Strategic partnerships with fintechs that remove some of the hurdles and make it easier for banks to offer BNPL solutions will not only help banks keep up-to-speed with the fintechs, but will help financial institutions attract new customers, drive stickiness with existing ones and increase customer lifetime values.