The future of consumer financial services looks more short-term and interest-free. According to a recent review from the FCA, the use of Buy Now, Pay Later (BNPL) in the UK nearly quadrupled in 2020, to £2.7 billion in transactions. BNPL has boomed in the last two years, especially coming off the heels of the pandemic. With trends such as digital acceleration, retail adoption, and younger shoppers driving up usage, new BNPL brands are quickly entering the market.
These brands can see that consumers’ digital-first lifestyle is ripe with opportunities for innovation and transformation. Currently, 56 per cent of consumers globally have used BNPL, and 60 per cent say they are likely to use BNPL over the next six to 12 months. The new entrants to the market are both well-funded and well-equipped to make a significant impact on the sector.
Alex Manly and Robbie Freeman, Associate Directors of Financial Services Strategy at Movable Ink, share what financial services marketers can learn from emerging BNPL brands and the ways they’ve positioned themselves for growth.
When consumer attitudes change, the market needs to catch up
BNPL has ascended quickly and is now beginning to disrupt the credit card industry. According to Marqeta, seven out of 10 UK consumers now prefer to use BNPL services instead of credit cards. As financial services brands gear up for an increasing number of Gen Z customers, they are also future-proofing their digital marketing strategies. Younger generations are more debt-averse, avoiding credit cards where hard credit checks are required to open a new account. BNPL’s soft checks and lack of revolving credit will appeal to many Gen Zers for this very reason.
What is it that consumers are actually looking for? According to FinExtra, people spend more when consumer brands offer BNPL, demonstrating that this flexibility is increasingly important to consumers. In fact, a survey conducted by Afterpay–a leading global BNPL brand–found that 42 per cent of Gen Z and 69 per cent of millennial shoppers are more likely to purchase items from brands that offer BNPL services. Those numbers should pique the curiosity of FinServ and retail marketers alike, considering the growth opportunity available.
Movable Ink’s leading global retail clients are calculating the cost of supply shortages and are still in the midst of the aftershock from the pandemic. As they look ahead to planning for Black Friday and Christmas, retailers are looking at more innovative ways than ever to build consumer engagement and capture wallet share. One of the key trends we’re observing is that offering flexible payment options is crucial, and BNPL is the payment option at the top of that priority list.
Retailers of all sizes now realise the value of BNPL options. Recently, big US players including Walmart and Amazon announced partnerships with Affirm to offer BNPL to their customers at the point of purchase. While once considered a trend, Buy Now Pay Later is clearly here to stay.
New kids on the block
Fintech brands around the world–Klarna (Sweden), Afterpay (Australia), and Affirm (US)–are innovating a once stagnant space and reaping the rewards. Klarna was valued at $46 billion in June 2021. Square purchased Afterpay for $29 billion, and Affirm is looking at reaching a marcap value beyond $40 billion this quarter.
Now traditional financial brands are catching up. Visa and American Express already offer post-purchase BNPL products, and Goldman Sachs has partnered with Apple to enter the space. Even neobanks, the now less-new kids on the block, are looking for ways they can catch up too. Things are moving so quickly that two of the UK’s neobanks launched their BNPL proposition with the same name on the same day. With the pace of change happening so quickly, how can financial services marketers influence their organisations to meet the increasing consumer demand?
Three Quick Tips to Keep Up with the Market
1. Clarity on payment terms and reminders
Offer clear and flexible payment terms. Currently, 31 per cent of BNPL users have made a late payment or incurred a fee, resulting in a negative user experience that could impact their behaviour in the future. Brands can help minimise late charges by making it easy to access online support or breakdown payment terms for individual products across marketing communications both in and outside of their apps.
2. Integration and engagement across the entire purchase journey
Success relies on engagement with consumers throughout the entire customer journey. By creating seamless, cross-channel experiences, brands can engage customers from pre-purchase through to their final payments. Marketers can build personalised product recommendations and offers by integrating an API directly into their mobile app or email marketing campaigns. The largest players are now integrating with shopping platforms, emerging categories (such as Etsy or Wayfair), and eCommerce checkouts that expand their presence as consumers browse and purchase. Finally, once a purchase is made, it is important for brands to clearly reinforce payment timing to ensure a positive experience for the customer.
3. Personalise the experience based on zero-party data
BNPL marketers often have blind spots in their data as they hand off to the merchant for purchase decisions. Brands can support their strategy by building out consumer profiles across marketing communications to avoid these blind spots. For example, by creating polls in email and mobile marketing campaigns, marketers can make customer segment profiles based on lifestyle, interest, or goal, and utilise this for tailored communications throughout the lifecycle.
The regulatory environment
According to Capco’s November 2020 report, almost half of UK BNPL users between the ages of 18 and 34 said they missed a BNPL payment. After several marketing campaigns deemed controversial by the UK’s Advertising Standard Authority after they banned a social media campaign by Klarna in December, the regulatory environment shifted. There were concerns of the financial risks involved with BNPL, causing the Financial Conduct Authority (FCA) to regulate these products and called for BNPL firms to carry out customer eligibility checks in February of this year.
This month, Klarna announced that they’re taking steps to minimise risk by introducing new operational changes to the way they conduct business, such as clarifying language in its terms and conditions and at checkout to inform customers that BNPL offerings are credit products and that there are risks involved with late payments.
As BNPL sweeps the globe and regulation takes shape, making these changes ahead of formal regulation will be vital for companies looking to utilise BNPL.
Positioning for growth
The growth of BNPL demonstrates that customers won’t wait for financial services’ historically slow pace of innovation. By putting customer needs first, both at the point of sale and throughout the marketing journey, financial services marketers can offer customers what they want while building or maintaining loyalty.