Affirming profits heats BNPL talks against banks
If you thought buy now, pay later (BNPL) headlines were hot during the pandemic, buckle up as the installment space begins a mad post-COVID race pitting banks against pure gaming.
The latest to make a splash is Affirm, after announcing on Monday (March 14) that it is adjusting the third-quarter fiscal 2022 results released in February upward from a previously calculated figure of $335 million to “at least $335 million” for the quarter, and “at least” $1.3 billion for fiscal 2022.
Appearing on CNBC’s Squawk Box on the same day, Affirm co-founder and CEO Max Levchin said: “We’re seeing exactly refunds and defaults, all metrics we’re tracking very, very carefully, work with our models as expected.”
Levchin told CNBC that “the reason we’re able to increase the advice a little bit is … not only has Affirm done a good job, but the demand for our service is increasing because consumers are trying to ration their money a little. little more carefully [and] trying to smooth their cash flow.
See also: Investors, traders and consumers have radically different views on Affirm
Take it to the bank
Affirm’s odyssey is among the most publicized today as competing forces push and pull on BNPL’s growing sector. Regulators fear consumers will gain the upper hand with installment credit, while players like banks see a new opportunity.
As Levchin said, growing demand is a factor in Affirm’s decision to boost its earnings outlook. The question that is increasingly being asked is who will respond to this demand: banks or FinTechs?
In the “Banking On Buy Now, Pay Later: Installment Payments And FIs’ Untapped Opportunity” study, a collaboration between PYMNTS and Amount, we found that 20% of US consumers have used BNPL in the past year, and 52 % are interested in 2022 — especially if offered by their bank.
Get the study: Betting on Buy Now, Pay Later: Installment Payments and Untapped Opportunity for FIs
According to this study, “70% of consumers currently using BNPL are interested in payment plan options from banks versus those offered by FinTechs. Interest in using bank-backed BNPL is high no only among those who already use such plans, but also among those who are not currently using them, with 36% of the latter citing their interest Only 7% of consumers who use BNPL say they are less interested in a product from a bank than compared to another FI offer.
Leveraging consumers’ trust in their primary bank or financial institution (FI) and the lending expertise of traditional institutions can make consumers comfortable with the concept.
In the PYMNTS TV On the Agenda panel in December, Chiro Aikat, Executive Vice President of Products and Engineering for Mastercard, North America, cited Mastercard data that 83% of US consumers want more options BNPL.
As Aikat said, “A lot of them like the experience of buy now, pay later – they like the way it works, they like the ease, but they would like their traditional institutions more where they engage in banking transactions or have a relationship with offering the same.
“Most [BNPL] the growth comes from heavy debit users, and banks own those accounts,” Aikat said.
A new BNPL landscape
It’s happening, and there are some well-defined use cases that show how easily banks can switch to BNPL.
During a roundtable on PYMNTS TV in February, WestCap chief executive Kapil Mokhat said that banks’ entry into BNPL “could resemble what we’ve seen in peer-to-peer payments (P2P ): Venmo came to the market as a pure-play and took it by storm, then banks launched Zelle about five years ago. Their market shares have grown exponentially since then, and the pure-play and bank-plays are doing very well.”
Related: Banks are stepping out of the sidelines to grab a chunk of the growing market Buy now, pay later
According to a January analysis from Bloomberg, BNPL’s growth “could accelerate to 46% per year through 2024, but less could go to pure-players Affirm, AfterPay and Klarna, as traditional card issuers and processors add BNPL functionality to point-of-sale cards in 2022.”
Banks are not blind to the decline in credit card use linked to the rise of BNPL, or to the higher levels of consumer engagement enjoyed by pure FinTech players, much like PayPal with its Pay option. In 4 installments.
Pure players are also unaware of the designs of banks and card issuers in their territory.
Square’s 2021 acquisition of Afterpay is seen by some as BNPL FinTech anticipating a rush of established lenders to the space becoming banks themselves, in effect.
As Quartz reported in 2021, “Square has transformed — surely and not so slowly — into a bank, a transition that will be accelerated by its new acquisition of Afterpay for $29 billion,” adding that “vendors who use Square’s card readers will now be able to offer Afterpay’s pay later option to their customers, which in turn will encourage more customers to sign up for Cash App, the personal payment app Square’s digital system, through which they will be able to pay their installments.
Read more: Banks can win by buying now, paying later if they play to their strengths