Consolidation of the BNPL industry: What does it mean?

Buy Now, Pay Later (BNPL) services have grown exponentially, particularly since the advent of COVID-19, accelerating digitization, merchant adoption, and consumer demand.

Collaboration can be mutually beneficial for banks, financial institutions and fintech companies

With customers choosing new online payment methods, an increasing number of online and in-store retailers are collaborating with BNPL platforms. In addition, the BNPL finance sector is on the rise as more young people are turning to these services, with 36% of those aged 21 to 25 using BNPL in the United States, according to Forbes.

With the largely unregulated BNPL sector growing and an untraceable debt pile, the regulator is standing up and taking notice. Regulation is bound to happen and will change the entire BNPL space, leaving a void in the market for compliant providers. There is a window of opportunity to fill this void, and this is where collaboration comes in.

According to data from McKinsey consumer lending aggregators, fintechs currently hold the majority of BNPL’s market share and have already captured about $8-10 billion in annual consumer financing revenue.

However, banks were actively moving into space. Since they are already committed to financial regulation, they just need a way to get competitive consumer financing programs to the point of sale (POS), which is when they look to collaborate with fintech companies.

Therefore, the merger will be driven by banks and financial institutions looking to leverage fintech technology solutions in order to become a strong player in the BNPL, and not just by fintech companies rushing to partner with banks to become compliant.

The increasing benefits of both parties drive mergers and partnerships across the industry. Successful partnerships are not only those that allow for regulatory compliance but those based on aligning values ​​and enhancing each party’s core strengths.

Arrival of acquisitions

Mergers and acquisitions (M&A) typically involve an entity recognizing that another company is bringing value and potential. Often this leads to swallowing another company. But in my opinion, the real power of standardization lies in recognizing and retaining the true nature of each company to contribute to mutual growth.

For example, an acquisition can be limiting because the entire mission of the secondary entity often serves the primary purpose of the company rather than its goals of innovation and growth.

Forming real partnerships

On the other hand, in the case of partnerships, the cooperating firms equally benefit from each other’s audience and reach. Rather than inhibiting each other’s growth, true partnership stimulates growth and encourages cross-pollination from one to the other. I have always found that true cooperation is based on mutually beneficial partnerships and shared values.

An example of such a partnership is Klarna and Stripe, two of the world’s largest private fintech companies, who have collaborated but retain their independent identity. Stripe has agreed to a strategic partnership with Klarna to offer the Swedish company’s BNPL payment method to its merchants without acquiring the company.

Without these kinds of mutually beneficial partnerships between banks and fintech companies in the BNPL space, not only will banks lose out on loan volumes, but also consumers as they turn to fintechs. By partnering with fintech providers, and not necessarily through acquisitions, banks can win back their customers, keep them close to them, and enhance customer relationship, value and experience.

Global expansion to win

Recently, Global Processing Services raised more than $300 million to accelerate the global technology and fintech revolution, demonstrating the important role of the fintech industry worldwide.

While some may argue that the most successful fintech companies maintain their position in terms of markets and products, others prefer expansion.

Global expansion into different markets, through mergers and partnerships, fuels innovation and out-of-the-box thinking as companies face new problems and need to come up with solutions to different market demands. It also means that companies can apply key lessons from one market to another and expand their customer reach by partnering with entities with a global presence.

As traditional financial barriers collapse and the world simultaneously becomes more interconnected, newly developed cross-border collaborations and partnerships between fintech companies and banks will be essential to the future of the financial services industry and the technology sector.

COVID-19 has also proven that large companies and financial institutions cannot adapt to a “digital first” approach. In fact, their schedules to introduce new products must be significantly accelerated, which can be achieved through overnight partnerships. Expect to see more of these things happen – very quickly.

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