Christine, a 25-year financial industry veteran, is EVP, Citizens and President of Citizens Pay
Buy now, pay later (BNPL) has exploded in recent years, as consumers have gravitated toward the option to receive a product or service upfront and spread its cost over a fixed number of payments. Globally, there were 360 million BNPL users in 2022, representing a loan value of over $24 billion in 2021 in the U.S. alone. While the headlines have largely been dominated by the fintechs financing this market, including Affirm, Afterpay and Klarna, banks have been operating in this environment for decades through B2B point-of-sale financing solutions and other installment-based payment products.
As the executive vice president of a bank that offers a consumer financing product, I believe there are many reasons why banks could own the market and succeed long-term despite the current brand recognition of fintechs —and being long-time providers of payment solutions is just one of them.
Experience With Regulatory Compliance
Banks operate in a highly regulated environment and have been doing so for more than a century. They are used to engineering and honing policies and safeguards for consumer protection. There has been extensive scrutiny about fintechs operating as consumer financial lenders while borrowers don’t realize their products are a form of credit, especially when taking into account the high percentage of BNPL users who fall behind on payments.
From my perspective, fintechs came into the market and were able to move nimbly and quickly precisely because they are startups that have operated in an unregulated environment; but the U.S. Consumer Financial Protection Bureau (CFPB) is likely to regulate the BNPL market soon, which could leave fintechs struggling to catch up with compliance.
Funding And Liquidity
Fintechs operating in the financial lending market typically borrow the money that they lend to consumers. With issues like the high rates of BNPL loan delinquencies, the borrowing environment could become increasingly difficult.
Banks by their very nature are well positioned to succeed in this area, as they balance a variety of consumer lending products as part of their overall product strategy. They may also have a lower cost of capital from deposits and larger balance sheets, which could provide a significant advantage.
Trust And Reach
Banks continue to earn a high amount of consumer trust, with reputations established across many decades or more and strong ties to their local communities. When push comes to shove, the brand reputation of a bank may be enough to win over a consumer as fintechs have begun to pull out of markets, perhaps due to competition, although these appear to have been strategic moves. In addition, with physical branches, traditional banks benefit from their mere presence in markets where consumers live, alongside their ability to provide expert financial advice and counsel.
The BNPL and point-of-sale lending market remains a growth engine in the payments sector, with ample opportunity for all types of lenders. However, if banks work to develop or maintain robust lending capabilities, strong underwriting techniques and customized partner solutions, they could stand to forge ahead on the leaderboard. There is no doubt that all of the players, both banks and fintech, will bring innovation and opportunity to make the market stronger. But ultimately, the nature of the market and the strengths of banks could give them a competitive edge that cannot be matched today.
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