BNPL for banks: Why banks should take advantage of the growing BNPL trend

As the use of credit cards continues to decrease, banks are bound to consider moving into the BNPL space to keep up with consumer demand for a flexible and modern payment solution. Large banks like Barclays, Santander, NatWest, HSBC, and Revolut are already on board the fast-paced BNPL train, and considering the benefits of BNPL for banks, more are certain to follow.

Here are the 4 top reasons why banks should incorporate BNPL sooner rather than later.


1. A major shift in consumer behavior

Although the market is still at its very beginning, BNPL is booming. Installment loans are hardly a new concept, but as the pandemic changed the lives of millions overnight, so did the habits of online shoppers, giving BNPL a hefty boost.

With the quick and seamless payment interaction combined with easy access to technology and the convenience of shopping from all corners of the globe, it comes as no surprise that consumers love to buy now and pay later. The major interest in BNPL applies especially to consumers in North America and Europe with countries like Sweden, Germany, and Norway taking the lead.

BNPL is not just a new short-lived payment trend, it is here to stay. As payment by cards is expected to decrease, digital wallets and BNPL functionalities swoop in and win market shares. In fact, when tracking user habits, 56% prefer to use BNPL over credit cards. Another report from Grand View Research shows that the BNPL market is expected to reach $39.41 billion by 2030.


2. Customer trust combined with high interest for bank-issued BNPL

Fintechs may be dominating in the BNPL space but in banks we trust. With hundreds of years in the industry funding loans, banks are well-positioned when it comes to brand awareness and customer loyalty. When competing with fintechs in the BNPL arena and offering merchants and end-consumers responsible financial solutions, banks can make use of their customer relationships and strengthen their market position further.

Another key factor for banks to take into consideration is consumers’ high interest in bank-issued BNPL offerings. According to research from PYMNTS, 70% of BNPL users would find bank-issued BNPL interesting if it was available. Even Millenials and Gen-Z belong to the category finding themselves interested in BNPL offered by banks, whereas 60%, respectively 54% declared to be interested in using bank-issued BNPL plans. “The younger generation expects payment methods to be relevant, convenient, and fast,” says Bahareh Zand, CPO at Sileon.

In order to attract all target groups, including Gen-Z and Millennials reluctant to pay with a credit card, BNPL for banks becomes the answer, keeping existing customers in the loop, while also appealing to the younger generation.


3. BNPL for banks unravel increased revenue

What previously was considered an additional payment solution has, in a matter of a few years, transformed into a norm for online shoppers. But it’s not just about keeping up with the digitalization trend and appealing to the new generation. Banks have a lot to gain from BNPL as it allows them to unlock new potential revenue streams.

Although it’s the end-consumer whose interest in BNPL is spiking due to the flexible payment scheme, it’s the merchant’s role that is vital for banks. While online shoppers can take advantage of interest-free installment loans in form of BNPL, merchants increase their conversion rates as basket abandonment reduces and customer experience improves. In turn, banks retrieve a transaction fee per issued sale, between 3-6%. In most instances, a flat transaction fee is also issued for the merchants when using the bank’s BNPL service.


4. Seamless omnichannel payment experience

Keeping up with high demands from consumers wanting to seamlessly switch between digital payment methods is a necessity for any payment company aiming to stay relevant.

Banks thus have an advantage when entering the BNPL space as it allows them to offer a smooth and diversified payment experience for consumers demanding BNPL, but also want the option to pay with credit cards or other digital payment methods.

The flexible approach offering BNPL as both split payments and installment loans, as well as other digital payment options and credit cards, caters to an omnichannel strategy where consumers are given financial empowerment but under responsible legislation.


How to incorporate BNPL for banks

Whether you want to build a BNPL platform in-house or join forces with a BNPL provider, the main goal is to create a BNPL offer that serves an evolving demand and not to settle for a quick fix.

The payment sector is an innovative one, in constant movement. Building an agnostic and scalable BNPL platform lets you evolve over time and allows you to keep up in the ever-changing market. But there are several critical functions that need to be accommodated, and for a bank with a complex infrastructure, the process of coordinating both Happy and Unhappy transaction flows can be unbearable.

Legacy systems don’t communicate well with each other, and implementing a BNPL platform that lasts requires an enormous investment in tech and skills.

Bahareh Zand, CPO at Sileon

The best way for a bank to incorporate BNPL into its payments platform is therefore to team up with a BNPL provider. Not only to save time and resources but also to ensure that users can move through the system seamlessly while also encountering Unhappy Flows, i.e. problems that can arise during the process, such as refunds or not being able to meet the payment due date.


Sileon’s offer

Depending on your needs and what you already have in store, Sileon can offer different BNPL solutions. You can either extend your payment offering with an API-based BNPL platform that plugs into your financial system or run an end-to-end solution by also implementing Sileon’s elective modules to customize your payment offering even further.

The modular approach gives companies the flexibility to start small and add credit products or expand to additional markets over time as the business grows.

The first and foremost component is to have the foundation – a platform that can handle the different transaction flows that BNPL requires. Sileon’s platform acts as a core banking system and is an essential component in order for banks and lenders to run a BNPL offer.

On top of the platform, you’ll find different modules, such as risk- and fraud assessment, reporting, advanced analytics, and ID validation to name a few. Depending on what you already have in store, these modules serve as flexible components, allowing you to create a custom-made solution for your payment offering.


The time to act is now

Although fairly new to the growing BNPL segment due to complex infrastructure, banks are in a position that could favor them in the market. A major shift in consumer behavior and customer loyalty are factors increasing the interest in bank-issued BNPL, even among Gen-Z and Millennials, as well as consumers demanding an omnichannel payment experience.

But in order to stay ahead of the game and not lose valuable time and revenue, it’s essential to go to market fast with a future-proof BNPL solution. Being a SaaS company, Sileon’s BNPL Platform and Solutions is completely cloud-based, thus letting you go live with your offer within weeks.


The information in this article is for informational purposes and general distribution only. Sileon assumes no responsibility or liability for any errors or omissions in the content of the article. The content in this article may change without notice.