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 digitization, merchant adoption and consumer demand.

Collaboration can be mutually beneficial for banks, financial institutions and fintechs

As customers opt for new online payment methods, more and more online and in-store merchants are joining 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 the growth of the largely unregulated BNPL sector and the accumulation of untraceable debt, the regulator sits down and takes note. Regulation is inevitable and will displace the entire BNPL space, leaving a void in the market for compliant vendors. There is a window of opportunity to fill that void, and that’s where collaboration comes in.

According to data from McKinsey’s consumer loan pools, fintechs currently hold the majority of BNPL’s market share and have already captured around $ 8 billion to $ 10 billion in annual consumer finance revenue.

However, banks have actively moved into space. Since they are already in compliance with financial regulations, they just need a way to bring their competitive consumer finance programs to the point of sale (POS) – that is, when looking to collaborate. with fintechs.

Therefore, consolidation will be driven by banks and financial institutions seeking to leverage fintech technology solutions to become powerful BNPL players, and not just fintechs rushing to partner with banks to get started. compliance.

Growing benefits for both parties result in consolidations and cross-sector partnerships. Successful partnerships are not only those that enable regulatory compliance, but also those that rely on aligning values ​​and enhancing each party’s core strengths.

The arrival of acquisitions

Mergers and acquisitions (M&A) typically involve one entity realizing that another company is bringing value and potential. The result is often that one company swallows another. In my opinion, however, the real power of consolidation lies in recognizing and conserving the true nature of each business to contribute to mutual growth.

For example, the acquisition can be restrictive since the entire mission of the secondary entity often serves the primary purpose of the business rather than serving its own objectives of innovation and growth.

Real partnerships are formed

On the other hand, in the case of partnerships, the collaborating companies also benefit from the audience and 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 world’s largest private fintech companies, which have teamed up while maintaining their own independent identities. Stripe has entered into a strategic partnership with Klarna to offer 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 lending volume but also consumers by turning to fintech companies. By partnering with FinTech providers, not necessarily through acquisition, banks can win back and keep customers close and strengthen customer relationships, value and experience.

Global expansion for victory

Recently, Global Processing Services raised over $ 300 million to accelerate the global revolution in technology and fintech, showing the important role of the fintech industry in the world.

While some may argue that the top performing fintechs retain a niche in terms of markets and products, others favor expansion.

Global expansion into different markets, through consolidations and partnerships, fuels innovation and original thinking as companies face new challenges and must find solutions to the demands of different markets. It also means that companies can apply fundamental lessons from one market to another and expand their customer base by partnering with entities with a global presence.

As traditional financial barriers fall and the world simultaneously becomes more interconnected, new cross-border collaborations and partnerships between fintech companies and banks will be essential for the future of the financial services industry and the tech sector.

COVID-19 has also proven that it is not just large corporations and financial institutions that can adapt to a “digital first” approach. In fact, their timeframes for new product introductions need to speed up dramatically, which can be achieved through partnerships forged overnight. Expect to see a lot more happening – very quickly.

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