Is the line between traditional BNPL providers and newcomers blurring?

By Puja Sharma

With Virgin Money launching a Buy Now, Pay Later (BNPL) credit card product, according to a press release the firm is launching a new credit card that will allow customers to spread payments over several months.

Customers can choose to repay their way, spreading monthly spending across a repayment plan that suits them, while boosting their credit score. Credit and affordability checks will take place before customers start to spend, ensuring credit lending is responsible and safe.

James Booth, VP, Head of Partnerships, EMEA at payment infrastructure company PPRO said, “Virgin Money launching a Buy Now, Pay Later (BNPL) credit card product is a significant deal for the industry. The credit industry, built up over decades by traditional lenders, has been completely revolutionised by disruptors in the fintech space. Competition is becoming fierce in all segments of the payments market, which ups the stakes for credit cards to innovate even faster than before, to stay competitive and relevant in the future.

BNPL has been considered a challenger to credit cards for quite some time now. Virgin Money entering the market and competing with other major BNPL players, is blurring the lines between more traditional providers and new entrants.

“Ultimately, consumers want ease, convenience, and lots of options when it comes to paying for goods and services, and Virgin Money’s announcement is indicative of traditional incumbents entering into uncharted territory to pivot to meet the demands of consumers in this ever-changing digital-first world,” he added.

What is in for the traditional payment providers?

In terms of revenue impact, BNPL has simplified the process of obtaining finance for consumers — fewer checks, online application processing, etc. With e-commerce growth fueled by BNPL, traditional financing companies are losing customers to BNPL, as per Thoughtwork’s blog.

By enabling customer acquisition by a whole new channel, Buy Now, Pay Later can drive both spend-per-customer and overall digital adoption. Additionally, it fosters customer loyalty by actively responding to their needs. By 2024, Buy Now Pay Later will account for 13% of all global e-commerce payments, increasing by 181% over the last decade. This is especially true among millennials and Gen Z.

The POS financing industry has undergone a big shift in recent years, with FinTech players taking advantage of the slow reaction banks have had to these changes with Buy Now Pay Later (BNPL) products.

Companies build repayment structures around the belief that customers will not default on payments to avoid a negative credit score. Due to the absence of this guarantee, BNPL exposes companies to a higher risk. As a result, it poses a greater risk if customers are unable to pay their dues.

The popularity of Buy Now, Pay Later (BNPL) products in the United States has surged dramatically over the last four to eight quarters. BNPL products such as those offered by Klarna, Afterpay, Affirm, and PayPal in the country have been adopted widely due to the global pandemic and the need to split the cost of purchases over time. Moreover, online shopping boomed during the global pandemic, driving growth in volumes for these providers.

As the competition continues to intensify in the United States BNPL market, providers are innovating with their product offerings to offer more flexibility and gain increasing traction from consumers.

In November 2021, Afterpay, one of the leading BNPL platforms, announced that the firm would introduce installment payment options for subscriptions in the United States. The company stated that users could use BNPL on entertainment subscriptions, gym memberships, and online services. The firm is expected to roll out the service in early 2022, starting first in the United States and Australia.