The Way It’s Been Done — and the Way It Will Be Done
But in order to capitalize on the market opportunities, said Hughes, FIs must tackle BNPL with a new approach, aided by partnering with providers like Amount.
In the banks’ current setup, where they have built installment offerings around a card product, consumers make a purchase and then that transaction is “flipped” into a BNPL program afterward. But, as Hughes contended, having a “pre-purchase” embedded BNPL option presented to a customer at the POS can drive more sales conversions.
Those conversions hinge on catering to consumers’ preferences. Consumers, he said, want to have the option to pay for things with a credit card, debit card or innovative financing product. Giving people more affordable options, which banks can typically do, as they have a deep understanding of the consumer and strong capital positions, is a positive for all stakeholders.
And in a sign of how consumers already are leveraging installments to fit their own preferences, he said, Amount has seen that customers prefer a split payment arrangement for purchases under $500. For transactions above that level, consumers tend to embrace installment plans that stretch out to as long as a year.
He said that Amount, through its integrations, offers that functionality to its banking partners, enabling them to launch BNPL in a matter of months rather than doing it all in-house, which lengthens the time to market considerably.
By tapping into the Amount/Marqeta offerings (and a modular approach) and leveraging the data that the bank already has on hand about a consumer’s finances, the BNPL offer can be tailored to that consumer’s risk profile, while moving beyond simply relying on FICO scores, Hughes said.
He noted that without having to do the heavy technical lift, banks can exploit some of the strategic advantages that have been in place for a long time, as they have expertise around underwriting (using Fair Credit Reporting Act variables) and compliance.
The combination of data-driven consumer insight and tailored offerings will ultimately allow banks to win in BNPL, he said. And for the FIs, the widened embrace of BNPL will ensure there is a more sustainable path to banks having a scalable portfolio.
Looking ahead, he said, we’re still in the early innings of BNPL’s expansion. But within a few years, by 2025, according to Hughes, all banks and credit card firms will offer BNPL.
The combination of the banks’ brand and capital advantages paired with them, Hughes said, can offer a competitive BNPL product in their markets.
“That’s good for the merchant base, driving total order sizes,” he said. “It’s good for the customer base, as the consumer gets more affordable options to choose when buying things online or in store.”
And it’s also good for the bank, which gets to build a stronger relationship with its customer with a product they like using.