The U.S. lending/payments market continues to have an ongoing, unresolved, systemic, and age-old conflict between merchants and credit card issuers. Without regulated credit card pricing and with a card issuer stranglehold on the consumer, it has been left to the commercial market to innovate itself out of this problem. Whether it is a cryptocurrency, faster payments, or Buy Now, Pay Later (BNPL), many new choices are coming to market, which merchants need to consider for their checkout experience. It’s all about evolution – with legacy payment solutions being the equivalent of our distant Neanderthal cousins and new payment solutions providers the equivalent of modern humans.
At the helm of this disruption is BNPL, a rapidly expanding global payment option that allows customers to flexibly make online or in-store purchases and pay the balance over time in installments. If used correctly, it can be a powerful budgeting tool for financially mature customers and a source of increased sales, average transaction value, wallet share, and a source for new customer acquisitions for merchants.
Predictably, this year’s discussion among merchants focuses largely on emerging BNPL payment options. At the recent MAG MYC key stakeholders from the payments industry and member merchants were brought together to discuss and provide insights on the latest topics within the payment domain.
The apotheosis for merchants remained the fact that they experienced a 20%-30% lift in conversion rates and 50-80% increase in average order value by adopting BNPL features, while repeat business improved by up to 20%. Additionally, discussions with payment professionals focused on how to choose the right BNPL partner for a merchant’s business. A perfectly matched BNPL partner would ensure that the merchants would ride the wave of rising toplines, increased market share, seamless customer experience, and higher volumes (as this option directly affects and reduces “cart abandonment rates”). To this effect, Brian Shniderman, CEO OPY USA, and Dean Sheaffer, Executive Consultant Specializing in Payments/Emerging FinTech, engaged with participating merchants to help them cultivate the correct framework to assess the right BNPL partner for their businesses.
In addition, John Drechny, CEO MAG, also focused on BNPL while discussing considerations for merchants while adding a new payment method, some of which included avoiding exclusivity agreements and volume requirements, enhancing customer experience, providing soft ROI, and long-term co-branding opportunities and value proposition for the merchant.
Amongst other industry conventions held this year was also the NRF that conducted a webinar on “Five things, merchants need to know about Buy Now, Pay Later lending,” where Brian Riley, Director Credit Advisory Service, provided his insights on this emerging payment option.
With all this talk around BNPL, there is a pressing sense of interest within the merchant community to know more about this exciting and emerging payment option, estimated to be a ~$650Bn to $1Tn market by 2025! BNPL seems to be the biggest payment transformation since credit cards, and this innovation is no longer a ‘nice to have,’ but a growing expectation that merchants need to take notice of. According to Barclay’s research, while BNPL currently represents a small portion of global e-commerce spending, it is growing rapidly. Worldpay’s 2021 Global Payments Report anticipates BNPL share of global online checkout will double by 2024 and more than quadruple in North America, where BNPL currently represents <2% of total e-commerce spending. While geographies like the Nordic countries, Europe and Australia have a higher penetration of BNPL in e-commerce, there is a significant potential for growth in this sector in the U.S.
While BNPL offers merchants riding toplines, increased market share, etc., growth in this market is also fueled by customers looking to avoid traditional forms of debt and making otherwise out-of-budget purchases without having to go to a bank. As a result of these market dynamics and the US market potential, many global BNPL giants like Openpay have launched in the US, after having captured the Australian and British markets.
However, the growth and flurry of developments in the BNPL space come amid calls for greater scrutiny and regulation of delayed payment providers, with campaigners across the Atlantic in the UK warning against consumers unwittingly racking up mountains of debt. The MAG MYC also touched upon these rising concerns, particularly on issues relating to regulatory compliance, higher costs (APRs), transparency issues (surprise costs/fees including accrued/deferred interest, exorbitant late fees, etc.), consequences on merchant/consumer experiences and most importantly irresponsible lending.
By augmenting alternative credit data to ensure high credit approval rates and transparency (no hidden fees) many providers have started to address these consumer/merchant issues, but the ethos of responsible lending and the required empathy to partner with consumers when they have unexpected circumstances (e.g., restructuring the payment schedule) is usually driven by the BNPL partner’s vision and the value they want to provide to their customers.
With these evolving issues, the current BNPL offering, or BNPL 1.0, is in a state of rapid change and advancement. The market is gradually making way for the NextGen BNPL which is closer and more suited to address the flexible needs of stakeholders including merchants, consumers, and regulators. NextGen BNPL is a highly evolved “Buy Now, Pay Smarter” (BNPS) solution, and significantly different than v1.0, making it the “modern human” to its soon to become extinct cousin, the BNPL 1.0 “Neanderthal”. How so? That is easy:
- NextGen BNPL is “For Merchants, by Merchants” – Businesses that are closest to the consumer have direct and meaningful influence over the features and functionality of the BNPL solution that can dramatically affect their relationships with their customers. That makes it smarter for the merchants.
- NextGen BNPL fairly shares the solution’s costs and rewards amongst merchants, consumers, and the provider. Merchant costs are transparent and more than made up for incremental sales, margin, and customer loyalty. Consumer costs are transparent and fair with no hidden “gotchas” or exorbitant APRs. The BNPL provider is fairly rewarded for eliminating payment system risks and enabling a system that is better for all stakeholders. That makes it smarter for consumers and much more regulator friendly, which is in turn smarter for everyone.
- NextGen BNPL is flexible. Different verticals like Home Repair, Education, Healthcare and Auto repair and servicing have distinctly different needs when it comes to BNPL solutions and it is incumbent on BNPL providers to enable this differentiation. Consumers need the ability to manage their cashflow and budget; Solutions need to offer flexibility in terms of higher limits, longer terms, consumer selection of payment due dates and payment frequency. This makes it not only smarter but financially healthier as well, which is incidentally also the reason for the fall of the Neanderthals (Read as BNPL 1.0)!
Interestingly, global BNPL players entering the US market, like Opy (Openpay’s U.S. arm), are trying to build solutions focused less on the momentary transactions and more on relationships, by providing a greater range of meaningful financing opportunities. Opy’s NextGen BNPL offering is not solely focused on impulse transactions like “t-shirts and tennis shoes”, but has been designed for “tires and teeth” bundled with the most flexible payment plans that the US BNPL market has witnessed till now, with longer terms up to 24 months and higher limits of up to $20,000. When a crown turns into a root canal or a leaky faucet turns into a bathroom remodel, Opy provides the smarter way for consumers to manage their cashflow without excessive interest rates.
Opy is also trying to solve a complex myriad of compliance issues by aligning the best industry minds to head their compliance and product development and offering a NextGen solution. OPY USA recently welcomed Gary Stein as their Chief Product & Compliance Officer who brings in 30 years of experience in financial services focused on ensuring safe, affordable, and transparent lending and payment solutions, and has been instrumental in helping OPY establish transparency and flexibility through tailor made products for the US market.
OPY USA led the way at MAG MYC this year to engage with merchants across forums, to bring together insights, industry knowledge and expertise to develop a BNPL solution which is truly made ground up for the U.S. market – for merchants, by merchants. To formalize a two-way parley, OPY has piloted the OMAC (OPY Merchant Advisory Council), comprised of merchant leaders in each of OPY’s target verticals along with partners and providers that can play key roles in the design, development and deployment of their BNPS Solutions catering specifically to U.S. consumer needs.
The U.S. payment landscape is going through a tectonic change. Players like Opy have separated as the modern human equivalent in contrast to the Neanderthal BNPL v1.0 and legacy payment providers by standing tall and looking to the horizon. Opy brings fairness, transparency, and flexibility to merchants and consumers alike, thereby building the payment solution consumers crave and defining the future of payments; it’s exciting to be a part of the sunrise on the evolution in payments fintech.