BNPL industry consolidation: what does it mean?
Buy Now Pay Later (BNPL) services have grown significantly, especially since the onset of COVID-19, which has accelerated digitalization, merchant adoption and consumer demand.
With customers opting for new ways to pay online, more online and in-store merchants are partnering with BNPL platforms. Additionally, BNPL’s financial sector is heating up as more young people turn to these services, with 36% of 21-25 year olds using BNPL in the United States, according to Forbes.
With BNPL’s growing sector largely unregulated and debt accumulation untraceable, the regulator is sitting up and taking notice. Regulation is inevitable and will alter the entire BNPL space, leaving a void in the market for compliant providers. There’s a window of opportunity to fill that void, and that’s where collaboration comes in.
According to data from McKinsey’s Consumer Lending Pools, fintechs currently hold the majority of BNPL’s market share and have already captured around $8-10 billion in annual consumer finance revenue.
However, banks have actively moved into space. Since they are already compliant with financial regulations, they just need a way to bring their competitive consumer finance programs to the point of sale (POS), i.e. when they are looking to collaborate with fintechs.
Consolidation will therefore be driven by banks and financial institutions looking to leverage fintech technology solutions to become strong BNPL players, not just fintechs rushing to partner with banks to come into compliance.
Growing benefits for both parties are driving cross-industry consolidations and partnerships. Successful partnerships are not just those that enable regulatory compliance, but those that are based on aligning values and enhancing each party’s strengths.
The arrival of acquisitions
Mergers and acquisitions (M&A) typically involve an entity realizing that another company brings value and potential. This often results in one company swallowing another. In my view, however, the real power of consolidation lies in recognizing and retaining the true nature of each business to help drive mutual growth.
For example, the acquisition can be burdensome since the secondary entity’s entire mission often serves the primary company’s purpose instead of serving its own innovation and growth goals.
Real partnerships are formed
On the other hand, in the case of partnerships, the collaborating companies also benefit from the audience and the reach of the other. Instead of inhibiting each other’s growth, a true partnership stimulates growth and encourages cross-pollination from one to the other. I have always found that true collaboration is based on mutually beneficial partnerships and shared values.
An example of such a partnership is Klarna and Stripe, two of the largest private fintech companies in the world, which have teamed up but kept their own independent identities. Stripe has entered into a strategic partnership with Klarna to bring the Swedish company’s BNPL payment method to its merchants without acquiring the company.
Without these types of mutually beneficial partnerships between banks and fintechs in the BNPL space, banks will not only lose out on lending volume, but also on consumers by turning away from fintech companies. Through partnerships with fintech providers, not necessarily through acquisitions, banks can find and keep their consumers close and strengthen the customer relationship, value and experience.
Global expansion for victory
Recently, Global Processing Services raised over $300 million to accelerate the global technology and fintech revolution, showing the important role of the fintech industry globally.
While some may argue that the most successful fintechs maintain a niche in terms of markets and products, others favor expansion.
Global expansion into different markets, through consolidations and partnerships, fuels innovation and out-of-the-box thinking as companies face new challenges and must find solutions to the demands of different markets. It also means companies can apply fundamental knowledge from one market to another and expand their customer base by partnering with entities with a global presence.
As traditional financial barriers crumble and the world simultaneously becomes more interconnected, new cross-border collaborations and partnerships between fintech firms and banks will be critical for the future of the financial services industry and technology sector.
COVID-19 has also proven that large corporations and financial institutions are not the only ones who can adapt to a “digital first” approach. In fact, their timelines for new product introductions need to accelerate dramatically, which can be achieved through partnerships forged overnight. Expect to see many more happening – very soon.