In recent years, economic uncertainty and the rise of digital-technology solutions have combined to make “buy now, pay later“ (BNPL) purchase options increasingly attractive to consumers around the world.
BNPL financing — also called point-of-sale (or POS) loans — helps consumers make purchases and pay for them in installments, often interest-free. Although this concept harkens back to layaway plans in vogue before the mass-market adoption of credit cards in the 1970s, it differs from layaway in two big ways:
- With BNPL, the purchase is typically finalized on the spot (“credit and carry”)
- BNPL allows for fast onboarding, underwriting, and funding from anywhere there’s an internet connection
With the coronavirus pandemic still raging, and 72% of US consumers focused on their “financial health” as a household priority, 56% of them had used a BNPL service to make purchases by mid-March 2021, according to MasterCard. Of these BNPL users, 36% say they make new BNPL transactions at least once a month.
[download]
Smaller banks need to get unstuck
Per MasterCard, the most popular items purchased with consumer-oriented BNPL are:
- Electronics 48%
- Clothing and fashion 41%
- Furniture and appliances 39%
- Household essentials 33%
- Groceries 24%
The main reasons consumers use BNPL are:
- Budget constraints 48%
- Avoiding credit card interest 37%
- Avoiding credit checks 25%
- Protecting personal data 21%
- General dislike of credit cards 19%
In many cases, third-party service providers that facilitate BNPL transactions are taking consumers where many banks — an obvious choice for businesses keen to offer BNPL — simply can’t follow. With rare exceptions, small- to medium-size banks don’t have the technology to compete. This is especially true in the US, where there are more than 10,000 banks and credit unions, most of them locally focused.
“Community banks” — typically with assets under $1 billion — “that want to develop digital-lending technology to deploy as B2B offerings often find themselves pinned under legacy systems that aren’t easy to reconfigure for today’s digital requirements,” says Dmitry Voronenko, CEO and co-founder of TurnKey Lender, a BNPL software developer with clients in more than 50 countries.
In other words, community banks and credit unions seem stuck, apparently barred from participating in a trend that has attracted around 50 million retail users “at least once” in the past year, according to PYMNTS.com. The publication even claims BNPL outruns cryptocurrency as the breakaway financial trend of the pandemic era.
In sum, community bank and credit union executives are under pressure to make sound decisions around BNPL, both for immediate action and future consideration in a fintech segment that’s growing in importance by the hour.
Financial giants are making BNPL moves
But, while smaller banks wonder how best to become BNPL providers, big banks and credit card issuers have started taking direct action.
In September 2021, MasterCard entered the fray with the launch of MasterCard Installments in the US, the UK, and Australia. The card company says its new program aims “to meet growing consumer demand for flexible, digital-first payment options” by equipping businesses and their banks to give consumers “greater choice at checkout, both in-store and online.”
In an earlier move, the retail side of JPMorgan Chase launched a BNPL workaround called My Chase Plan late in 2020. It gives consumer cardholders “the option to pay off a purchase over a period of time with no interest, just a fixed monthly fee,” but the transaction must be run through a Chase credit card.
But small- and middle-market banks interested in facilitating BNPL through retailers and other product and service providers don’t have to re-build their in-house lending processes to help consumer-facing merchants provide BNPL. Nor do they have to share fees or lose surrender valuable data to megabanks and multinational card issuers.
That’s where a BNPL software maker like TurnKey Lender, and more specifically its loan-management system comes into play.
“Over the years, we’ve developed an understanding of community banks and the pain points encountered by their executives,” says Marc Pickren, TurnKey Lender’s CEO in the Americas. “Knowing their concerns means we can work to provide the while-label solutions they need at flexible price points.“
This insight brings a number of advantages to banks that select TurnKey Lender as their digital lending-automation partner, including these five:
1.An integrated solution
Banks are turning from multiple third-party solutions for different stages of loan origination and processing, and for different credit products. TurnKey Lender’s bank-grade software leads this convergence, supporting an array of loan types from mortgages and personal loans to business loans, commercial real estate loans, and point-of-sale lending. It’s all on one platform that features consolidated reporting for immediate insight on loan portfolios through data analytics fueled by machine learning and artificial intelligence.
2. Choice about the cloud
TurnKey Lender supports cloud access and storage and dedicated-server access and storage. If your bank has the personnel and institutional knowledge to develop and manage a financial-software platform on-site? If yes, then a dedicated-server approach may be the ticket. If no, your bank may opt for a cloud-based “banking as a service” model to balance cost and convenience.
3. The learning curve gets flattened
Community banks and credit unions aren’t always steeped in the ways of digital lending. TurnKey Lender brings them up to speed with an approach to sales that’s essentially consultative. On the premise “an informed customer is the best customer,” getting prospects deeply comfortable with our lending solutions is an important part of our mission to help lenders succeed. This philosophy extends to the 24/7 support TurnKey Lender provides its financing partners.
4. Data security and customer privacy
TurnKey Lender’s security procedures are rigorously vetted by third parties with unquestioned credentials. The lending-tech pioneer is compliant with standards set by the Open Web Application Security Project, or OWASP, the main gauge of best practices in digital lending. Under OWASP standards, TurnKey Lender has earned the ISO 27001 standard of information security, and the ISO 9001 standard for quality management.
5. Rapid deployment
Community banks don’t have time to waste in rolling out digital lending as a service to other organizations. That’s why TurnKey Lender provides solutions that are configured for each client firm, and — instead of being “hardcoded” — uses flexible flow-building and rules-management tools to make its time-to-market essentially unbeatable.
These solutions reflect the advantages of using “a bank-grade lending platform that’s been stress-tested by lenders in verticals around the world,” says TurnKey Lender’s Voronenko. “As we enter a new digital age that’s transforming the way we all conduct business, we’re equipping banks to continue setting the standard for smart, efficient, and profitable BNPL.”
